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:
Whether reimbursement of redemption fee by a broker or dealer in respect of an exchange of mutual fund units held in an RRSP or RESP constitutes a contribution or payment in to the plan which is subject to the RRSP deduction limit or RESP excess amount penalty tax.
Position TAKEN:
No.
Reasons FOR POSITION TAKEN:
The mutual fund units are owned by the plan trusts and the redemption fee is an expense of the trust not the annuitant or subscriber; any reimbursement of the fee by a third party does not constitute a contribution by the annuitant or a payment in by subscriber.
XXXXXXXXXX 941241
Attention: XXXXXXXXXX
June 13, 1994
Dear Sirs:
Re: Payment of Deferred Charge Fee
By Dealer on Exchange of Mutual Fund Units
This is in reply to your facsimile transmissions of May 11, 1994, in which you ask whether the reimbursement by brokers or dealers of the redemption fee owed by a registered plan unitholder on the exchange of mutual fund units for units in your client's mutual fund would be considered a contribution by the annuitant with respect to a registered retirement savings plan (RRSP) or a payment by the subscriber with respect to a registered education savings plan (RESP). The reimbursement of the redemption fee would take the form of the issuance of additional units in your client's mutual fund.
In our view the costs associated with redeeming mutual fund units in an RRSP trust are expenses of the trust and not of the annuitant. Where a third party reimburses the RRSP trust's expenses on the sale of the units, or off-sets the expense by transferring in new units of an equivalent value to the redemption fee, this would not be considered a contribution to the trust by the annuitant or a spouse as contemplated by subparagraph 146(1)(j)(ii) of the Income Tax Act (unless as otherwise stated all references to this statute are to the Income Tax Act S.C. 1970-71-72, c. 63 as amended, consolidated to June 10, 1993 - the "Act"). Thus, the payment would not be considered a "premium" as defined in paragraph 146(1)(f) of the Act and would not be deductible pursuant to subsection 146(5) of the Act.
With respect to an RESP, the Act limits payments into the plan in two ways: 1) paragraph 146.1(2)(k) requires that the total of all payments into a plan in a year in respect of a beneficiary shall not exceed $1500; 2) subsection 204.9(1) of the Act defines the "excess amount" for a year, which is subject to a penalty tax, as, in general terms, the total of all payments made "by or on behalf of the" subscriber in respect of a beneficiary in excess of $1500. As the mutual fund units are owned by the RESP trust and not the subscriber, the redemption fee is the trust's expense. Thus, a reimbursement or off-setting of the fee by a third party would not be considered a payment by or on behalf of the subscriber. Furthermore, it is our view that providing the additional units to the RESP trust to off-set the redemption fee would not be a payment into the plan in respect of a beneficiary.
You also asked if our answer would change if, instead of the dealer issuing additional units to the plan to off-set the fee, the dealer paid the fee to the party to whom the fee is owed (e.g. the fund manager) on behalf of the registered plan trust. In our view the method of covering the plan trust's expense, whether by direct payment or by reimbursement, does not affect our conclusion that a contribution to an RRSP or a payment in by a subscriber in respect of a beneficiary to an RESP does not occur.
We have referred your question concerning a non-registered plan to the Trusts Section of this directorate and they will respond to you under separate cover.
Although the foregoing comments are not binding on the Department, we trust they are of assistance.
Yours truly,
for Director
Financial Industries Division
Rulings Directorate
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