19 August 1997 External T.I. 9718445 - RRSP INVESTMENT COUNSEL & MANAGEMENT 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:

1)RRSP & RRIF investment counsel fees;

2) RRSP & RRIF investment management fees

Position:

1)Confirming position that counsel fees paid inside RRSP or RRIF trust constitute benefit or amount received to annuitant; payment by annuitant not deductible;

2) Confirming position that investment management fees paid by annuitant are considered payment of a premium to RRSP for section 146 and Part X.1 purposes; confirming that payment of such RRIF expenses by annuitant is forbidden by 146.3(2)(f) and would cause income inclusion under 146.3(11).

Reasons:

1) Fees are those of person who contracts for the services and deduction denied to annuitant by virtue of 18(1)(u);

2) fees are those of person who owns the securities - the trust.

XXXXXXXXXX 971844

Attention: XXXXXXXXXX

August 19, 1997

Dear Sirs:

Re: Investment Counsel and Investment Management Fees

This is in reply to your letter of June 30, 1997, concerning investment counsel fees and investment management fees related to investments held by a registered retirement savings plan ("RRSP") or registered retirement income fund ("RRIF") trust.

A. INVESTMENT COUNSEL FEES FOR ADVICE

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.

If the fees are paid by the RRSP or RRIF trust, it is our view that the annuitant has received a benefit from the trust which must be included in income. If the fees are paid by the annuitant, the fees are not deductible to the annuitant because the deduction is denied by paragraph 18(1)(u) of the Income Tax Act (the "Act"). Paragraph 18(1)(u) denies the annuitant a deduction with respect to expenses for services in respect of an RRSP or RRIF which includes both administration fees and investment counsel fees.

B. INVESTMENT MANAGEMENT FEES

These 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).

Since these fees are properly expenses of the owner (the trust), when paid with trust funds there are no tax consequences to the annuitant.

Where the annuitant pays the RRSP trust expenses, it will constitute the payment of a premium to the RRSP for purposes of section 146 and Part X.1 of the Act. 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 our comments will be of assistance to you.

Yours truly,

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