20 July 1995 External T.I. 9515855 - RRSP TREATMENT OF REIMBURSEMENT OF MUTUAL FUND 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:
	Treatment of reimbursement of mutual fund redemption 	fees.

Position TAKEN:

It is not income to annuitant, not contribution, not gift, not advantage; it is income to RRSP trust (investor)

Reasons FOR POSITION TAKEN:

Previous files: 941241; 942872;932584;921554;941241;950732

		951585
XXXXXXXXXX		D. Duff

Attention: XXXXXXXXXX

July 20, 1995

Dear Sirs:

Re: Treatment of Reimbursement of Mutual Fund Redemption Fees

This is in response to your letter of June 1, 1995, and further to your conversation with David Duff of this Directorate on July 19, 1995, requesting our opinion on the reporting requirements of payments to a trust governed by a registered retirement savings plans ("RRSP") in respect of the reimbursement of mutual fund redemption fees.

As we understand the situation, XXXXXXXXXX is the trustee for an RRSP and a mutual fund manager acts as agent for XXXXXXXXXX The agent is responsible for managing these assets and receives a fee for these services. The agent pays a commission to brokers, either its own employees or independent brokers, to sell units of the mutual fund.

A mutual fund may charge a redemption fee to investors who have their units in the mutual fund redeemed. The redemption fee is paid essentially by reducing the amount the investor would otherwise receive on the redemption. In some cases brokers will reimburse the investors for all or part of this fee, where the investor agrees to have its units redeemed by the old mutual fund and buy units of a new mutual fund from the broker. In that case, the broker receives a commission for the sale of the new mutual fund units and directs that it be paid to the investor's account in the form of additional units of the new mutual fund. Where the investor is an RRSP trust additional units of the new mutual fund will be credited to it, on the day of the transfer or shortly thereafter, as a reimbursement of the redemption fee.

We have previously stated that such a reimbursement would neither be income to the annuitant nor be considered a contribution to the RRSP trust by the annuitant as contemplated in the definition of retirement savings plan in subsection 146(1) of the Income Tax Act ("Act"). We have also stated it is neither a gift to the RRSP trust for the purposes of the excess contributions tax in Part X.1. of the Act, nor a prohibited advantage pursuant to paragraph 146(2)(c.4) of the Act.

In our opinion the redemption fee is an expense of the RRSP trust so the reimbursement would be a reduction in that expense. There would be no reporting requirement and it would not be considered to be a transfer from one RRSP to another. For Part XI purposes the cost amount would be the value of the units when contributed to the RRSP trust.

These comments also apply where the investor is a trust governed by an registered retirement income fund.

We trust this is satisfactory.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch