17 April 1997 External T.I. 9706285 - FEES PAID IN RESPECT OF RRSPS

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 fees incurred in respect of an RRSP

Position:

1)Admin or trustee fees can be paid by either annuitant or rrsp;
2)Management fees are an expense of the rrsp;
3:Investment counselling fees for advice to the annuitant are an expense of the annuitant;

Reasons:

1)There is support for treating the administration fees as either an expense of the RRSP or the annuitant.

2)Management fees are for managing the property of the rrsp trust;

3)Investment counselling fees are contracted fro by the annuitant.

XXXXXXXXXX 970628

April 17, 1997

Dear XXXXXXXXXX:

Re: Fees and Expenses incurred by an RRSP

This is in reply to your letter of February 25, 1997, in respect of the above noted topic.

Your primary concern appears to be the treatment of fees paid directly by you to XXXXXXXXXX, with respect to the investment of funds held in your RRSPs. XXXXXXXXXX has provided you with a copy of our letter of October 30, 1996, addressed to his firm, and has apparently advised you, on the basis of that letter, that the fees you paid to XXXXXXXXXX will not be deductible on your personal tax return and will be treated as premiums paid to your RRSP. (Please note that although people generally refer to amounts paid into an RRSP as "contributions", the Income Tax Act (the "Act") defines them as "premiums". Accordingly, that term was used in the letter to XXXXXXXXXX).

The letter addressed to XXXXXXXXXX addressed two kinds of fees paid to trustees of RRSPs; "administration fees" and "investment management fees". As noted in the letter, administration fees relate to the overall direction and management of the affairs of an RRSP or RRIF. In most cases these are fairly small and are charged by the trustee of an RRSP or RRIF for creating and registering the plan, filing annual documents with various authorities including Revenue Canada, and generally fulfilling its requirements as the custodian of the trust funds.

"Investment management fees" on the other hand relate to the administration and management of property held by the trustee of the particular plan. When an RRSP is opened with a trustee a contract is entered into with the trustee under which the trustee agrees to hold property in trust and invest it for the purpose of providing you with a retirement income. The trustee owns the funds contributed to it for this purpose. Accordingly any fees or other expenses that occur as the result of holding the property are expenses of the trustee and, if they are paid by the annuitant of the RRSP, the annuitant is, in fact, agreeing to contribute additional funds to the trustee in order to assist the trustee in paying its expenses.

In addition to the above two forms of expenditure, we would also like to bring to your attention a third form of expenditure our letter of October 30, 1996, did not cover. These are investment counsel fees for advice provided to individuals with self-directed RRSPs.

The determination of whether investment counsel fees or a portion thereof would be considered expenses of a RRSP or RRIF trust is a question of fact that can only be determined after a review of all of the facts pertaining to each particular situation. However, where an annuitant of an RRSP or RRIF trust enters into a contract with a person for advice on the purchasing and selling of investments of the trust (i.e. the contract is between the annuitant and the person), it is the Department's position that the fees for such advice are an obligation of the annuitant and not of the RRSP or RRIF trust. Accordingly they will not form a contribution or gift to the RRSP.

As stated in paragraph 4 of Interpretation Bulletin IT-124R6, such fees are not deductible to the annuitant pursuant to paragraph 20(1)(bb) of the Act because the annuitant is not the owner of the investments.

Given your description of the fees you have paid to XXXXXXXXXX, it may be appropriate for you to review your particular situation with XXXXXXXXXX to determine what proportion, if any, of the fees you have incurred must be treated as contributions to an RRSP.

We trust the above comments will be of assistance to you.

Yours truly,

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