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What should I keep in mind so I don't exceed the foreign content limit in my RRSP?

According to Canada Customs and Revenue Agency's rules, no more than 30% of the investments in your RRSP can be foreign content.

The 30% limit is based on the original purchase price or book value of the investments in your RRSP, as opposed to the current market price which may be more or less.

If you invested $10,000 in an RRSP, no more than $3,000 (30% of $10,000) of your plan could be foreign content.

Let's assume you have two RRSPs, and that you contributed $10,000 to each, for a total of $20,000. You could have as much as $6,000 (30% of $20,000) in foreign property - as long as you hold the maximum allowed percentage in each plan. The limit is calculated separately for each RRSP plan you hold. You couldn't comply with the percentage rule by holding $6,000 of foreign content in one of those two RRSP plans and zero foreign content in the other since that would mean you'd have 60% foreign content in one of your RRSPs.

Also, if you only have one investment in an RRSP plan, it couldn't be an investment that counts as foreign content because that would give you 100% foreign content in that RRSP. This is one reason why investors use self-directed RRSPs: they let you hold several different investments in the same RRSP, which allows you to include some foreign content.

Make sure your foreign content doesn't move offside. If your RRSP holds mutual funds that invest in foreign markets and the fund automatically reinvests fund distributions into more fund units for you, this will boost the book value of your foreign mutual fund. This is a reason for purposely aiming to keep your foreign content slightly less than 30%. For each month that your RRSP exceeds the 30% limit, you are liable for a Canada Customs and Revenue Agency tax of 1% of the amount that's over the limit.

There's an exception to the 30% rule if your RRSP includes investments that qualify as "small business" property. Labor-sponsored venture capital corporations are an example. For every $1 that you hold in these speculative mutual-fund-like labour funds, Canada Customs and Revenue Agency lets you add $3 of foreign content, over and above the 30% limit, to a maximum of 40%.

Investments that can be used to add foreign exposure in your RRSP include stocks listed on certain foreign stock exchanges, bonds issued by certain foreign governments and mutual funds that invest in foreign markets.

In fact, you can boost the foreign content in your RRSP without worrying about Canada Customs and Revenue Agency's restrictions if you use investments such as these:

Bonds issued by Canadian governments and corporations that are payable in foreign currencies;

Mutual funds that gain exposure to foreign markets through the use of derivatives like options and futures;

Canadian corporations that do a substantial part of their business in other countries.

An investment suitable for some people may not necessarily meet your needs. Consider getting professional advice.