20 February 1998 External T.I. 9727875 - REVISED MGMT & INV COUNSEL FEE POSITION

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:

Can management fees related to the property in an RRSP or RRIF be paid by the annuitant and investment counsel fees related to an RRSP or RRIF be paid by the trust without any tax ramifications?

Position:

Yes (reversal of positions taken since late 1996)

Reasons:

Due to difficulties encountered in the allocation of fees for services and the severe resultant tax consequences, the payment of investment management fees by the annuitant will not constitute a contribution to the particular plan and the payment of investment counsel fees by the particular trust will not result in the annuitant receiving a benefit from the trust.

972787
XXXXXXXXXX M.P. Sarazin

Attention: XXXXXXXXXX

February 20, 1998

Dear Sirs:

Re: Management Fees and Investment Counsel Fees

This is in reply to your letter dated October 17, 1997, wherein you requested confirmation of your understanding of the Department's general views with respect to fees paid in respect of self-directed registered retirement savings plans ("RRSPs") and registered retirement income funds ("RRIFs").

COMMENTS

Following the March 16, 1996 Budget proposal (which is now law) to disallow the deduction for RRSP/RRIF administration fees where they were paid by the annuitant, this Department was asked to review its position concerning the situation where these fees for services were paid out of RRSP or RRIF funds. Our final conclusion was that such fees could be paid by the trust or the annuitant without any tax ramifications.

This review in turn led to several enquiries in regards to other types of fees paid by the annuitant or out of the RRSP or RRIF funds, such as management fees and investment counsel fees for advice that relate specifically to the property of the RRSP or RRIF trust. We then expressed several opinions in this regard based on our understanding of the contractual agreements.

Various providers of these services have advised us that while they did not disagree with our interpretations, there were significant practical difficulties in trying to comply. The reasons for this are the myriad of different types of documentation and contractual agreements, the different types of services provided, the allocation of fees for such services, and the different types of service providers. Also, in some cases, the income tax consequences of the manner in which the parties chose to pay the fees could be very severe. As a result we have revisited the issue, and again asked for input from the Departments of Finance and Justice.

We are pleased to inform you that given our agreement with the concerns noted above, we are revising our position to accept that the payment of management fees related to an RRSP or RRIF trust by the annuitant will not constitute a contribution to the RRSP or RRIF, and to accept that the payment of investment counsel fees by an RRSP or RRIF trust will not result in the receipt of a benefit by the annuitant from the RRSP or RRIF trust, as the case may be. Consequently, these fees will be treated the same as administration fees, in that such fees can be paid by the trust without any income inclusion or paid by the annuitant with no deduction.

Since this is a revision of opinions we previously expressed, and is intended to make it easier for RRSP and RRIF trust administrators, annuitants, and service providers to carry out their business affairs, it is retroactive and thus supersedes those previous positions. As well, these views as they relate to the conferral of benefits by one party on another are confined to the RRSP/RRIF situation.

We trust this provides you with the information you require.

Yours truly,

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