ARCHIVED – Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs) – Anti-avoidance Rules
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- What was announced in the 2011 budget with respect to RRSPs/RRIFs?
- What are anti-avoidance rules?
- What are the new rules proposed by the budget in respect of RRSPs and RRIFs?
- When are these new rules effective?
- Are there any exceptions to these new anti-avoidance rules for advantages?
- Are there any exceptions to these new rules for prohibited investments?
- What should I do if I participated in an inappropriate transaction involving my RRSP/RRIF?
- Where can I obtain more information on this and other RRSP/RRIF schemes?
- Where can I obtain more information on the new RRSP/RRIF anti-avoidance rules?
1. What was announced in the 2011 budget with respect to RRSPs/RRIFs?
The 2011 budget announced the strengthening of anti-avoidance rules to help prevent aggressive tax planning strategies, including those that purport to enable RRSP annuitants to access their RRSP funds without including these amounts in income.
2. What are anti-avoidance rules?
Anti-avoidance rules are rules of wide application that counter aggressive tax planning undertaken to circumvent the overall spirit of the law.
3. What are the new rules proposed by the budget in respect of RRSPs and RRIFs?
The budget proposes to introduce new anti-avoidance rules for RRSPs and RRIFs similar to the rules already in place for Tax Free Savings Accounts (TFSAs). The rules provide for a special tax on certain tax advantages that unduly exploit the tax attributes of an RRSP/RRIF on prohibited investments and on non-qualified investments. In all these cases, the Minister of National Revenue may waive or refund all or a portion of this tax depending on the circumstances.
What is an advantage?
An advantage may generally be described as a benefit obtained from a transaction that is intended to unduly exploit the tax attributes of an RRSP/RRIF, which could include a reduction in the value of an RRSP/RRIF without a corresponding income inclusion. An advantage also includes certain other transactions such as benefits from "swap transactions". These advantages will be subject to a tax that is generally equal to their fair market value, representing a 100% tax. As well, an advantage includes income earned on a prohibited investment after March 22, 2011.
What is a prohibited investment?
A prohibited investment generally includes debt of the RRSP/RRIF annuitant and investments in entities in which the annuitant or a non-arm's length person has a significant interest (generally 10% or more) or with which the annuitant does not deal at arm's length. A special tax equal to 50% of the fair market value of the investment will apply to an annuitant on acquisition of a prohibited investment by his or her RRSP/RRIF (or at the time that an investment becomes prohibited). This tax may be refundable under certain circumstances.
What is a Non-Qualified Investment
A non-qualified investment is property that is not a qualified investment as described in the Income Tax Act and the Income Tax Regulations. Annuitants of RRSPs/RRIFs that own non-qualified investments will be subject to a special tax of 50% of the fair market value of the non-qualified investment. The tax liability will apply at the time that a non-qualified investment is acquired by the RRSP/RRIF or at the time an investment becomes non-qualified. This tax may be refundable under certain circumstances.
4. When are these new rules effective?
The new rules are effective for transactions occurring, income earned, capital gains accruing and investments acquired by an RRSP/RRIF after March 22, 2011.
5. Are there any exceptions to these new anti-avoidance rules for advantages?
The new anti-avoidance rules will not apply to benefits related to swap transactions if the transaction is completed before July 2011. This exception also applies to benefits related to swap transactions if the transaction is completed before 2013 and is undertaken to remove an investment from an RRSP/RRIF that:
- would be a prohibited investment for the RRSP/RRIF; or
- would result in an advantage under these new rules if the investment is held by the RRSP/RRIF.
6. Are there any exceptions to these new rules for prohibited investments?
The 50% special tax on the fair market value of a prohibited investment will not apply to a prohibited investment that was acquired or held by an RRSP/RRIF before March 22, 2011, provided that it is disposed of before 2013.
7. What should I do if I participated in an inappropriate transaction involving my RRSP/RRIF?
You can correct previous omissions or errors through the CRA's Voluntary Disclosures Program. If you make a full disclosure before any compliance enforcement action is started, you may only have to pay the taxes owing plus interest. Go to the Voluntary Disclosures Program for more information.
8. Where can I obtain more information on this and other RRSP/RRIF schemes?
For a more detailed discussion on RRSP schemes, please consult our March 2009 Tax Alert.
9. Where can I obtain more information on the new RRSP/RRIF anti-avoidance rules?
The CRA is committed to providing taxpayers with up-to-date information. The CRA encourages taxpayers to check its Web pages often. All new forms, policies, and guidelines will be posted as they become available.
In the meantime, please consult the Department of Finance Canada's Budget 2011 documents for details.
- Date modified:
- 2015-07-15