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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues:
When a non-qualified investment is held in an RRSP or RRIF and subject to PartXI.1 tax will the property continue to be subject to this tax when the property is transferred to another RRSP or RRIF.
Position:
No, there will be an income inclusion in the annuitant's income equal to the fair market value of the property pursuant to 146(10) or 146.3(7) of the Act.
Reasons:
When the property is transferred to another RRSP or RRIF the transferee trust is considered to have acquired the property. As such the transferee trust has acquired property that is a non-qualified investment.
XXXXXXXXXX 2002-015137
M. P. Baldwin, CA
January 7, 2003
Dear XXXXXXXXXX:
Re: Transfers of Non-Qualified Investments in Registered Plans
This is reply to your facsimile of July 9, 2002 requesting our views as to whether property held in a trust governed by a registered retirement savings plan ("RRSP") or registered retirement income fund ("RRIF") that is subject to the 1% tax under Part XI.1 of the Income Tax Act (the "Act") will continue to be subject to such tax where the property is transferred to another trust governed by an RRSP or RRIF for the same annuitant.
In your letter you have given an example of a transfer of property from one RRSP to another RRSP with another trustee with the same plan type. As noted in Information Circular 70-6R5, 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 your local tax services office. Information Circulars and Interpretation Bulletins referred to herein are available at your local tax services office or on the internet at www.ccra-adrc.gc.ca/formspubs/menu-e.html. Consequently, we can only provide you with the following general comments.
The Canada Customs and Revenue Agency's general views regarding qualified investments for a trust governed by an RRSP are found in Interpretation Bulletin IT-320R3 entitled Qualified Investments-Trusts Governed by Registered Retirement Savings Plans, Registered Education Savings Plans and Registered Retirement Income Funds. Paragraphs 28 to 31 of this Interpretation Bulletin deal with the income tax consequences of acquiring, holding and disposing of property that is not a qualified investment.
When an RRSP acquires a property that is not a qualified investment, the fair market value of that property at the time it is acquired is added to the income of the annuitant under the RRSP pursuant to subsection 146(10) of the Act. However, subsection 146(10) of the Act does not apply to property that was a qualified investment at the time of acquisition and subsequently becomes property that is not a qualified investment. Subsection 207.1(1) of the Act imposes a tax at the end of each month on an RRSP trust in respect of non-qualified investments held by it. The amount of tax payable for each month is equal to 1% of the fair market value of the property at the time it was acquired by the trust of all such property that the trust continues to hold that constitutes a non-qualified investment. However, subsection 207.1(1) of the Act has no application to property the fair market value of which has been included in the income of the annuitant pursuant to subsection 146(10) of the Act. The equivalent provisions for a RRIF are in subsections 146.3(7) and 207.1(4) of the Act.
Where an annuitant transfers property that is a non-qualified investment which is subject to subsection 207.1(1) of the Act, from one of his or her RRSPs to another of his or her RRSPs, the property transferred to the transferee RRSP trust will cease to be subject to the provisions of subsection 207.1(1) of the Act, but will be subject to the provisions of subsection 146(10) of the Act. In our view, a transferee RRSP or RRIF will acquire transferred property at the time of the transfer when it is a non-qualified investment for purposes of the Act and, as such, the property will be subject to the provisions of subsection 146(10) or 146.3(7), respectively, of the Act.
We are forwarding a copy of our response to our colleagues at the Department of Finance for their consideration.
We trust that the above comments will be of assistance to you.
Yours truly,
Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
c.c.: Dave Wurtele
Department of Finance
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