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The growing vulnerability of the minority Liberal government poses a potentially expensive problem for people who jumped on a budget measure allowing unrestricted foreign investing in registered retirement savings plans.

The risk is that investors who go above the 30-per-cent foreign content limit would have to pay a penalty tax if federal budget legislation doesn't pass before any opposition moves to bring down the Liberals.

For this reason, now's the time to act if you want to eliminate any chance you'll have to pay a monthly tax equal to the lesser of 1 per cent of your excess foreign content or 1 per cent of the total cost of all your foreign investments.

A spokeswoman for the Canada Revenue Agency said the 30-per-cent foreign content limit is still in force, but the federal department is not enforcing it right now. "We're not requiring at this time that penalties be collected because of the announcement made in the budget," Dawna LaBonte said.

Penalties for exceeding the foreign content limit are collected by the financial firm or trustee where an RRSP is held and then remitted to the government each March. If the budget legislation doesn't pass and the government falls, then it seems likely that penalties would be reimposed, perhaps retroactively.

Clients of some fund companies will have signed up for a service that rebalances their account periodically so any excess foreign exposure is automatically eliminated. If you use this feature, it's worth a check with your investment adviser or fund company to see if it's still in effect. AIM Funds Management reports that while it has suspended its automatic rebalancing service, clients will not have to pay any penalties that might later apply if they inadvertently rise above 30-per-cent foreign content.

If you've purposely gone above the limit, get a reading of exactly how much foreign content you've got. Investors with on-line access to their RRSP accounts may be able to get up-to-date information on their foreign content. Failing that, the most recent monthly account statement will reflect the impact of any foreign funds, stocks or bonds bought up to March 31.

Remember, the book value of your investments is the key here, not the market value. Book value is the cost of your investments plus any of the distributions that many mutual funds periodically make. These distributions explain why the book value of a fund can creep up over time to be well above what you actually paid.

An easy way to bring down your foreign content level is to make a quick lump-sum contribution to your RRSP, assuming you have the room. The new cash would boost the total book value of your account, thereby shrinking the proportion of foreign content.

Another solution is to sell enough of your foreign holdings to get below the limit. These days, pretty much all mutual fund companies have penalties to prevent short-term trading of funds and they typically amount to 2 per cent of the investment. However, these fees are usually discretionary, which means a fund company would almost certainly waive them for clients who bought a big position in a global equity fund and needed to sell some to get below the 30-per-cent limit.

If you just bought a foreign fund with a deferred sales charge, then selling could trigger a redemption fee of 6 per cent or so. A way to avoid these fees is to switch your excess foreign holdings into domestic funds offered by the same fund company. Advisers are able to charge clients a small amount for switch transactions, but it's hard to imagine them actually doing this to someone trying to get his or her foreign content back in line.

Mike Morrow, a financial planner in Thunder Bay, suggests using a technique called crystallization to address excess foreign content in your RRSP. If you've owned a foreign fund for five years and its book value is above its market value (this is entirely possible), then you or your adviser could sell the foreign fund and then later buy the same fund back again. This would have the effect of resetting the book value of your fund at a lower level, thereby lowering your foreign content.

At the same time, you could crystallize a hotshot Canadian equity fund that has a market value well above its book value. By selling and then buying back in, you raise the book value and thus give yourself more room for foreign exposure.

"The easiest way, if you don't want to change any of your investments and you're a little bit over the foreign content limit, is to crystallize a Canadian gain or crystallize a global loss," Mr. Morrow said.

rcarrick@globeandmail.ca