13 June 1997 External T.I. 9715135 - EXPENSES RELATING TO RRSP & RRIF

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:

Payment of expense that relate to an RRSP.

Position:

1)Administration or trustee fees may be paid by either the annuitant or the 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 an expense of the RRSP or the annuitant.

2)Management fees are for managing the property of the RRSP.

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

                                     5-971513
XXXXXXXXXX		                         Franklyn S. Gillman

Attention: XXXXXXXXXX

June 13, 1997

Re: Administration Fees, Investment Counsel Fees:

Registered Retirement Savings Plan ("RRSP") &
Registered Retirement Income Funds ("RRIF")

This is in reply to your letter of June 6, 1997, in which you ask us to clarify our position on the payment of the above-noted fees with respect to an RRSP and a RRIF. A description of the fees and the tax consequences flowing from the method of payment follow.

Administration fees relate to the overall direction and management of the affairs of the RRSP or RRIF trust and relate to the normal services provided by an RRSP trustee or RRIF carrier. They are also sometimes referred to as trustee fees.

Where these fees are paid:

by the annuitant after March 5, 1996, no deduction will be allowed. The payment will not be considered the payment of a premium to the RRSP, nor a gift to an RRSP for purposes of Part X.1 of the Act;

by the RRSP or RRIF trust with funds inside the RRSP or RRIF, it is our view that no benefit or amount is received by the annuitant as a consequence.

Investment counselling fees for advice relate to the expense incurred to obtain an investment strategy regarding the specific investments of a particular portfolio from a person whose business it is to render such a service. Where an annuitant is responsible for the investment decisions of the assets of the RRSP or RRIF trust, he/she may enter into a contract with a person for advice on the purchasing and selling of these investments. Since the contract is between the annuitant and the adviser and the annuitant is responsible for providing investment decisions to the plan trustee, it is our position that the fees for such advice are an obligation of the annuitant and not of the RRSP or RRIF trust.

In this situation where these fees are paid:

by the annuitant, it would not be considered a premium or a gift contributed to the RRSP or RRIF;

by the RRSP or RRIF trust with funds inside the RRSP or RRIF, it is our view that the annuitant has received a benefit from the RRSP or RRIF which must be included in income.

As the Department had previously taken the position that such fees are not deductible to the annuitant (per paragraph 4 of Interpretation Bulletin IT-124R6), new paragraph 18(1)(u) of the Act only confirms this treatment.

Another fee that is commonly associated with RRSPs and RRIFs are referred to as investment management fees. Although you have not specifically referred to these fees in your request, we would like to provide you with our opinion as to their treatment for income tax purposes.

Investment management fees are expenses relating to the administration or management of the property in an RRSP or RRIF trust. For more information please refer to the description in paragraph 4 of Interpretation Bulletin IT-238R2 (e.g., fees relating to 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). These fees usually occur when the plan issuer enters into an agency agreement with a broker, and we consider them to be expenses of the plan trust.

Where these fees are paid:

by the RRSP or RRIF trust, there would be no tax consequences to the annuitant since the fee is an expense of the trust;

by the annuitant, it would constitute the payment of a premium to the RRSP for purposes of section 146 and Part X.1 of the Act since this is an expense of the RRSP trust. Payment of RRIF trust expenses by the annuitant is prohibited by paragraph 146.3(2)(f) of the Act. If such a payment is made, in the year the payment is made there will be an income inclusion to the annuitant equal to the fair market value of the RRIF property pursuant to subsection 146.3(11) of the Act.

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