IN KIND transfers that include covered calls

Question

I have an RRSP that i transferred 800 shares to my taxable investment account along with it i transferred 2 covered call agreements each containing 4 contracts. When totalling and moving everything should the value of the covered calls be added or subtracted from the total value of the underlying equity.

In my example i moved 800 shares at a new cost-basis of $5.05 which came to $4040 and the 2 agreements for 4 call contracts were priced @ 0.25 each & 0.70 each coming to $100 & $280. When this moved should the $380 come off of the $4040 or be added to the $4040. So was my transfer for $3660 or $4320.

I'm looking at my taxable account and my RRSP and it looks as though they really messed things up.

My RRSP shows 8 calls for each of those when it should be zeroed out and my taxable has 2 contracts of 4 each as long calls not covered.

Would appreciate anyone who could set me straight on this...

thank you

GC

Answer 1

I would argue (for what it's worth) that the value of the calls would be subtracted from the account value, since to close them out you would buy them back from cash within the RRSP account.

So the total equivalent cash amount should be $3,660 since you could sell the stock, buy back the calls and be left with $3,660 cash.

Whether that's true from a tax standpoint I have no idea, but that's what I'd expect to be taxed on if I were moving these from a tax-deferred to a taxable account.

It's possible your RRSP sold calls to close the account instead of buying to close, and that the taxable account did the opposite (buy calls instead of selling them). But you'd have to contact the RRSP to be sure - they may have just messed up the transfer order.