1 November 2000 External T.I. 2000-0042965 - RRSP NON-ARM'S LENGTH FEES

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: 1) Can an RRSP or RRIF pay investment counsel fees to a related party? 2) Will investment counsel fees be active business earned by the recipient corporation?

Position: 1) Yes, if reasonable. 2) Question of fact.

Reasons: 1) Nothing in the Act preventing non-arm's length transactions. 2) No comments can be provided.

XXXXXXXXXX 2000-004296
M. P. Sarazin
Attention: XXXXXXXXXX

November 1, 2000

Dear Sirs:

Re: Investment Counselling Provided to RRSP and RRIF Trusts of Related Clients

This is in reply to your letter of July 28, 2000, requesting our views regarding the payment of reasonable investment counselling fees by a registered retirement savings plan trust ("RRSP") or registered retirement income fund trust ("RRIF") where the RRSP or RRIF annuitant is related to the corporation providing the investment counsel services. You also ask whether the fees earned by the corporation would constitute active business income for purposes of the Income Tax Act (the "Act").

Comments

In your letter you have outlined an actual fact situation related to completed transactions. As noted in Information Circular 70-6R3 (available at your local tax services office or on the internet at www.ccra-adrc.gc.ca/formspubs/menu-e.html), this directorate can only provide advance income tax rulings in respect of specific proposed transactions. We must advise you that the review of completed transactions falls within the responsibility of tax services offices. Consequently, we can only provide you with the following general comments.

There is nothing in the Act preventing an RRSP or RRIF from paying investment counsel fees to a person related to the annuitant of the RRSP or RRIF. However, there may be tax ramifications where the investment counsel fees charged by the non-arm's length person are not reasonable in the particular circumstances. The determination of whether investment counsel fees charged by a non-arm's length person to a RRSP or RRIF are reasonable is a question of fact.

We note that investment counsel fees relating to RRSPs or RRIFs can be paid by the RRSP annuitant or the RRIF annuitant without any tax consequences. However, investment counsel fees relating to RRSPs or RRIFs are not deductible by the annuitant of the particular RRSP or RRIF.

We are unable to provide any comments on whether income earned by a corporation would constitute active business income without all of the facts.

We trust the above comments will be of assistance to you.

Yours truly,

Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate