24 May 1996 External T.I. 9611235 - RRSP PREMIUMS EXPENSES GIFTS

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 administration fees paid in respect of an RRSP

Position:

see file 952423

Reasons:

see file 952423

XXXXXXXXXX						5-961123

Attention: XXXXXXXXXX

May 24, 1996

Dear Sirs:

Re: Registered retirement Income Funds (RRIFs)
Registered Retirement Savings Plans (RRSPs)

This is in reply to your letter of March 27, 1996, in which you requested clarification of several issues resulting from the Federal Budget of March 6, 1996. In particular you wish to know what the implications of, paragraph (14) of the Notice of Ways and Means Motion to Amend the Income Tax Act (the ("Act") tabled with the Budget will be. Paragraph 14 of the notice provides that no amounts paid after March 5, 1996 for investment counselling or administration services in respect of an RRSP or RRIF will be deductible in computing an annuitant's income.

Please note that draft legislation relating to the Notice of Ways and Means Motion has not been introduced into Parliament. Therefore, at this time, we can only provide general comments that may or may not be applicable when the motion is finally passed into law. However, Revenue Canada will continue to recommend that taxpayers complete their tax returns in accordance with proposed amendments to the Act, subject to any adjustments that may be required if Parliament amends the proposals, or if the legislation is not, in fact, enacted as stated.

Before answering your questions, we must first clarify that Revenue Canada has never accepted the deduction by an annuitant of an RRSP or RRIF of amounts that relate to the payment of expenses of the annuitant's plan. The annuitant could only deduct fees that were properly expenses of the annuitant of the RRSP or RRIF such as reasonable administration fees that related to the overall direction and management of the affairs of the RRSP and were for the type of services normally provided by an administrator or trustee of an RRSP or RRIF to the annuitant. These amounts are referred to below as "administrative fees". Payments made by an annuitant for administration and management of the property in an RRSP or RRIF trust such as commissions, acquisition or brokerage fees paid in respect of the property of a trust governed by an RRSP or RRIF have never been deductible by the annuitant.

With respect to investment counselling fees the comments in the Department's Interpretation Bulletin IT238R2 (enclosed) are also relevant. Subject to the restriction on the deduction of expenses proposed in the Budget, paragraph 20(1)(bb) of the Act requires that, to be deductible, the payment of investment counselling fees must be made by the taxpayer for advice to the taxpayer as to the advisability of purchasing or selling specific shares or securities for the taxpayer or for services in respect of the administration or management of shares or securities of the taxpayer. As stated in paragraph 7 of IT238R2, it is the Department's position that fees charged by the trustee of an RRSP or RRIF trust directly to the annuitant are not deductible by the annuitant pursuant to paragraph 20(1)(bb), as the shares or securities of the plan belong to the trust and not the annuitant.

Given this background, we can answer your specific questions as follows:

Treatment of Administrative Fees.

Administrative fees paid by an annuitant of an RRSP or RRIF before March 6, 1996 may be deducted by the annuitant as discussed above.

Administrative fees paid by an RRSP or RRIF on behalf of the annuitant will constitute benefits to the annuitant as defined in subsection 146(1) of the Act and in general should be reported as income by the annuitant. However, Revenue Canada will continue to allow such fees paid before March 6 1996, to be paid out of the annuitant's RRSP of RRIF and not to be treated as benefits to the annuitant provided no receipt is issued for them and no deduction is claimed by the annuitant.

Administrative fees paid by the annuitant after March 5 will no longer be deductible by the annuitant in accordance with the Budget proposals.

Administrative fees are obligations of the annuitant and not obligations of the RRSP or RRIF. Accordingly, their payment by the annuitant does not constitute the payment of a gift to the RRSP or RRIF for the purposes of paragraph 204.2(1.2)(I)(b) of the Act.

The Department's position described in b. above, will no longer apply with respect to administrative fees paid out of funds of an RRSP or RRIF after March 5, 1996. These amounts will have to be reported as benefits to the annuitant.

RRSP or RRIF expenses:

Amounts paid by an annuitant or the spouse of an annuitant in respect of the expenses of the annuitant's RRSP will be treated as premiums as defined under subsection 146(1) of the Act for purposes of both section 146 and part X.1 of the Act.

Amounts paid by the annuitant of an RRSP in respect of the expenses of the RRSP will not be treated as gifts to the RRSP.

The above treatment will be applicable to any amounts paid in respect of the expenses of an RRSP whether the amounts are paid directly to the provider of the service for which the expense was incurred or as a reimbursement of amounts paid by the RRSP or its administrator.

The provisions of paragraph 146.3(2)(f) provide that an RRIF can not accept any contributions except as provided thereunder. Accordingly, since the paragraph does not permit contributions by an annuitant, it would not be possible for an annuitant of an RRIF to pay the expenses of the plan.

The above positions will apply to RRSPs and RRIFs to the extent indicated above. They will also apply to a Locked-in Retirement Account ("LIRA") or Life Income Fund ("LIF") to the extent they are either an RRSP or a RRIF.

In our opinion, the proposed elimination of the deduction of administrative fees will also apply to deny the deduction against income from an RRIF or RRSP.

The above comments are based on our understanding of the law and the proposed amendments as they may apply in general and may or may not apply to the circumstances of any particular case. They do not form an advance income tax ruling and they are not binding on the Department.

Yours truly,

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