31 January 1996 External T.I. 9525585 - EXPENSES OF RRSP TRUST

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:

Discussion of expenses associated with administration of and investments by RRSP trust.

Position:

Reiteration of previous positions and clarification of IT and Guide statements.

Reasons:

Guide reduced coverage of topic, IT increased coverage although some ambiguity in relation to statement concerning 20(1)(bb).

XXXXXXXXXX 952558

Attention: XXXXXXXXXX

January 31, 1996

Dear Sirs:

Re: Expenses of a Registered Retirement Savings Plan (RRSP)

This is in reply to your letter of September 20, 1995, in which you ask us for further clarification concerning the identification of expenses which are properly payable by an RRSP trust.

You noted that you called to obtain clarification of our letter to you of May 18, 1995 (file #950373), but did not receive a return call from the author as you were advised would occur. Our records indicate that Mary Pat Baldwin, of our office, did discuss the letter with you on June 15, 1995. However, we apologize for any misunderstanding that the author would also call you.

With respect to our letter of May 5, 1995, our reference to Chapter 9 of the 1994 T4RSP and T4RIF Guide was to page 8 thereof and the commentary under the heading "Complete boxes 16 to 34, as they apply". As you point out, the 1993 version of this guide also refers to "Administration fees" which are properly payable by the annuitant outside the RRSP trust. We confirm that the reference includes what you have called annual "trustee fees".

The Department's general position concerning the fees and expenses associated with administration of an RRSP and investments of the RRSP trust is contained in paragraph 4 of Interpretation Bulletin IT-124R6, a copy of which is enclosed for your information. With respect to the comment on the deduction of administration fees by the annuitant, and in response to your query concerning the proper authority for the deduction, the relevant section is section 9 of the Income Tax Act (the "Act"). Note that the comment concerning fees for investment counselling is accurate since the investor is the RRSP trust and these expenses are properly charged against trust income. The deduction under paragraph 20(1)(bb) is denied the annuitant of the RRSP because the annuitant is not the investor; furthermore, the deduction would generally be irrelevant to an RRSP trust except in the situation where, pursuant to subsection 146(4) of the Act, the trust is not exempt from Part 1 tax.

With respect to your specific questions concerning mutual fund trust units in an RRSP, and as stated in the aforementioned Interpretation Bulletin, the costs associated with disposing of investments (e.g., the back-end load) in an RRSP trust are accounted for in determining the RRSP trust's proceeds of disposition.

A "front-end load" charge, on the other hand, is an acquisition fee, as are brokerage fees and any other costs associated with the purchase of the units; these are considered capital expenses and must be added to the "cost amount" of the units purchased.

"Cost amount" is defined in subsection 248(1) of the Income Tax Act (the "Act") and for capital properties, such as mutual fund units in an RRSP, is the "adjusted cost base" ("ACB") of the property. The ACB of a capital property is defined in section 54 of the Act to mean the cost of the property adjusted in accordance with section 53 of the Act. Enclosed are copies of Interpretation Bulletin IT-390 and its Special Release which discuss some of the adjustments to the cost base of interests in unit trusts; mutual fund trusts are unit trusts. By virtue of paragraph 53(1)(d.2) of the Act, additions to the cost of a mutual fund trust unit are also determined under subsection 132.1(2) of the Act.

With respect to your question concerning the proper amount to be entered on a contribution receipt, the contribution is the amount paid by the annuitant into the RRSP trust. This is either the fair market value of property-in-kind or the amount of the cash. If mutual fund units are contributed, any loss incurred by the annuitant on the disposition would be deemed to be nil in accordance with clause 40(2)(g)(iv)(B) of the Act.

Although the foregoing comments are an expression of opinion only and are not binding on the Department, we trust they are helpful.

Yours truly,

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