18 November 1998 External T.I. 9829725 - PART XI, INDIVIDUAL RRSP OR ALL 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: Why is the Part XI tax applied to each individual RRSP and not all RRSPs with the same annuitant?

Position: Part XI is clear; each individual trust.

Reasons: Each trust is subjected to the foreign property limits otherwise it would be impossible to administer the provision.

XXXXXXXXXX 982972
M. P. Sarazin
Attention: XXXXXXXXXX

November 18, 1998

Dear Sirs:

Re: XXXXXXXXXX

This is in reply to your memorandum dated November 16, 1998, wherein you requested further rationale behind the application of Part XI of the Income Tax Act (the “Act”) to individual registered retirement savings plans (“RRSP”) and not to the aggregate property held in all of the RRSP trusts of any one annuitant.

In our letter dated November 5, 1998, we explained how Part XI applies to a trust governed by an RRSP. Part XI was enacted to limit the foreign investments that are held by certain tax-exempt entities (including RRSPs) by subjecting the particular tax-exempt entity to a 1% tax on the total cost amount of the foreign property that exceeds generally 20% of the cost amount of all property held at the particular time. Currently, each RRSP trust has access to all of the relevant information to determine whether it would be subjected to Part XI taxes under the Act.

In our view, it would be impossible to apply the Part XI taxes on an aggregate basis in respect of all of the annuitant’s RRSP trusts. The most obvious problems that we could identify are as follows:

(a) How would one RRSP trust know that the annuitant also has other RRSP trusts?

(b) Where there are several RRSP trusts, how would each RRSP trust know the cost amount of the property held by the other RRSP trusts?

(c) Which particular RRSP trust would be subjected to the Part XI taxes should the aggregate foreign property held by all of the RRSP trusts exceed the limits allowed under the Act?

(d) Where the Part XI taxes are not paid, which RRSP trust would be subjected to the applicable penalty taxes?

We believe that applying Part XI to each individual trust is only logical. The provisions of Part XI of the Act can be easily administered by Revenue Canada and the trustees of each particular RRSP trust. In addition, each RRSP trust is only responsible for the property it holds.

We note that many taxpayers choose to hold a self-directed RRSP. A self-directed RRSP is only one RRSP for tax purposes but it may hold any different number of investments.

We trust that our comments will be of assistance.

Yours truly,

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