10 December 1996 External T.I. 9638555 - RCA ADMINISTRATION 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:

The income tax treatment of investment management fees (administration fee) of an RCA when paid by the beneficiary of the RCA?

Position:

The payment should be regarded as a contribution by the beneficiary to the RCA.

Reasons:

The fee is the proper expense of the RCA.

									5-963855
XXXXXXXXXX							Franklyn S. Gillman

Attention: XXXXXXXXXX

December 10, 1996

Dear Sirs:

Re: Investment Management Fees

This is in reply to your letter dated November 12, 1996 wherein you requested clarification as to the proper income tax treatment of investment management fees of a retirement compensation arrangement ("RCA") when paid by the employee beneficiary of the RCA.

The situation described in your letter appears to be an actual fact situation related either to a past transaction or to an actual proposed transaction. If the situation described relates to an actual transaction which has already been implemented, the review of such transactions falls within the responsibility of Tax Services Office and it is the practice of this Department not to comment on such transactions when the identities of the taxpayers are not known. If, however, the situation described relates to an actual proposed transaction, it should be the subject of an advance income tax ruling. Should this be the case, your query should take the form of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R2 dated September 28, 1990. As expressed at paragraph 6 in the Information Circular, the Department will not express opinions on definite transactions that are being proposed other than by way of an advance income tax ruling, nor will the Department provide rulings on completed transactions. However, we are prepared to provide you with the following general comments.

Investment management fees are expenses relating to the administration or management of the property in an RCA. These fees relate to one or all of the following; the manager's services of providing custody of securities, maintenance of accounting records, collection and remittance of income, and buying and selling on behalf of the owner with or without reference to the beneficiary. This fee is usually determined with reference to the fair market value of the assets within the arrangement at a particular time, but another method may be used.

Method of Payment:

By RCA trust;

These fees are properly expenses of the RCA trust and when paid with trust funds there are no tax consequences to the beneficiary.

By the beneficiary;

In our opinion this payment of the RCA expenses will constitute the payment of a contribution to the RCA for purposes of the definition of refundable tax at subsection 207.5(1) of the Act. If such a payment is made, in the year of the payment there may be a refundable tax payable by the trustee of the RCA pursuant to subsection 207.7(1) of the Act.

These opinions are our best interpretation of the law as it applies generally. They may, however, not always be appropriate in the circumstances of a particular case. As stated in paragraph 21 of Information Circular 70-6R2 written opinions are not advance rulings and, accordingly, are not binding on the Department.

We trust these comments will be of assistance.

Yours truly,

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