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: Could an investment advisor pay an amount to a RRIF in respect of damages sustained from poor investment advice provided one of its former employees?
Position: Question of fact.
Reasons: There are situations where this is allowed but we would want to review all of the facts before approving any proposed settlement.
January 16, 20001
WINNIPEG TSO HEADQUARTERS
Client Services Division M.P. Sarazin, CA
(613) 824-5441
Attention: Jim Simpson
2000-006055
Recontribution of Funds to a Registered Retirement Savings Plan
We are writing to you in response to your memorandum of December 7, 2000, requesting our views regarding certain proposed payments that are to be made by XXXXXXXXXX to a registered retirement savings plan ("RRSP").
XXXXXXXXXX is proposing a settlement offer to a client for the aggressive advice provided by one of its former consultants to the client. In XXXXXXXXXX , the former consultant advised the client to borrow $XXXXXXXXXX to acquire mutual funds and the client could use funds from her registered accounts to finance the loan. The client converted her registered retirement savings plan to a registered retirement income fund ("RRIF") and she used RRIF withdrawals to finance the loan payments. The assumptions used by the former consultant were aggressive and the client feels that she has received poor advice. XXXXXXXXXX states that, if the former consultant had followed internal corporate policies, the investment would not have been made. Under the proposal, the client will sell the mutual funds acquired with the loan and she will pay off the balance of the outstanding loan. XXXXXXXXXX will deposit $XXXXXXXXXX in the client's RRIF since this amount represents the total of the amounts withdrawn to service the client's debt and the lost growth to the RRSP had the client not followed the former consultant's advice.
You have been asked to comment on the proposed transaction.
Opinions concerning proposed transactions involving specific taxpayers should only be provided in response to a request for an advance income tax ruling. XXXXXXXXXX should be advised that an advance income tax ruling will be provided if a request is submitted in accordance with the procedures detailed in Information Circular 70-6R3 dated December 30, 1996.
Whether a specific proposal to settle a dispute with a client regarding damages resulting from an investment strategy provided to an RRSP or a RRIF will be accepted by the Canada Customs and Revenue Agency (the "Agency") is a question of fact. To make this determination, we would want to review all of the relevant facts. As evidenced by Advance Tax Ruling ATR-24, there are situations where the Agency has concluded that amounts could be paid to an RRSP in respect of damages without affecting the annuitant under the RRSP. In our view, depending on the relevant facts, a ruling could be provided where amounts are paid to a RRIF in respect of damages sustained by the RRIF.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Canada Customs and Revenue Agency's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version, or they may request a copy severed using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Mrs. Jackie Page at (613) 994-2898. A copy will be sent to you for delivery to the client.
Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
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