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.
Principal Issues: Will we consider that an RRSP advantage has been conferred where a commission rebate is allocated by a broker to a client's non-registered account in a situation where the rebate is computed by reference to the client's total holdings in both his RRSP and his non-registered accounts.
Position: Yes.
Reasons: The amount of the rebate is linked to the existence of an RRSP. Because the advantage is conferred outside of the RRSP, it does not fall under the exceptions to the RRSP advantage provision in subparagraph 146(2)(c.4)(ii).
2004-005643
XXXXXXXXXX C. Lalonde
(613) 957-2060
April 16, 2004
Dear XXXXXXXXXX:
Re: Commission Rebates - Registered Retirement Savings Plan ("RRSP") Advantage
This is in response to your e-mail of January 14, 2004 inquiring about the tax implications of allocating a commission rebate to your client's non-registered account in a situation where the amount of the rebate is computed by reference to your client's total number of trades or the total value of his investments in both his RRSP and non-registered accounts.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. The following comments are, therefore, of a general nature only and are not binding on the Canada Revenue Agency.
Subject to five enumerated exceptions, paragraph 146(2)(c.4) of the Income Tax Act (the "Act") prohibits an RRSP from providing an advantage that is conditional in any way on the existence of the plan to the annuitant or to someone not at arm's length with the annuitant.
In the situation you describe, the RRSP is used to determine the client's total number of trades or investment balance, which in turn determines the client's eligibility for and the amount of the rebate. Accordingly, in our view, the advantage is conditional on the existence of the RRSP for purposes of paragraph 146(2)(c.4) of the Act. Because the client receives the rebate outside of the plan, subparagraph 146(2)(c.4)(ii) of the Act does not apply. None of the other enumerated exceptions apply to this situation. Therefore, this would be considered a prohibited advantage subject to the penalty in subsection 146(13.1) of the Act such that the issuer would be liable to a penalty equal to the greater of $100 and the amount or value of the advantage.
We trust that these comments will be of assistance.
Yours truly,
Roberta Albert, C.A.
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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