22 October 1998 External T.I. 9823475 - MANAGEMENT FEES & SWAPS

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. Whether the Department's revised position regarding the payment of RRSP or RRIF management fees is in force;

2. What are the tax consequences of swapping securities for cash with your RRSP.

Position:

1. Yes;

2. Disposition at the fair market value.

Reasons:

1. According to our position;

2. Wording of the Act.

XXXXXXXXXX 5-982347
Fouad Daaboul
Attention: XXXXXXXXXX

October 22, 1998

Dear Sirs:

Re: Management Fees and Swaps

This is in reply to your letter of May 29, 1998, to Registered Plans Division, Revenue Canada, which was forwarded to us for reply, wherein you requested whether you could administer management and investment counsel fees related to a registered retirement savings plan ("RRSP") or registered retirement income fund ("RRIF") based on the Department's revised position released on February 23, 1998. In addition, you requested our views regarding the cost of securities that an annuitant acquires from his or her RRSP where securities, property or funds having a fair market value equal to the fair market value of the securities acquired by the annuitant are swapped or exchanged for such securities.

The Department's current position is that an annuitant can now pay the management fees and/or investment counsel fees relating to his or her RRSP or RRIF with personal funds or with funds held within the particular plan without any adverse tax consequences.

Whenever an annuitant gifts, contributes or transfers property to an RRSP, there is a disposition of property by virtue of paragraph (c) of the definition of disposition under section 54 of the Income Tax Act (the "Act"). The annuitant's proceeds of disposition and the RRSP's cost of the property would be the fair market value of such property.

In respect of transactions between an annuitant and his or her RRSP, we would have to review all of the facts, documentation and other information in order to determine the appropriate tax consequences of such transactions. Where an annuitant exchanges or swaps property with his or her RRSP, the transaction could represent a bona fide purchase and sale of property or it may represent the conferral of a benefit by the RRSP to the annuitant.

In the situation where the fair market value ("FMV") of the property disposed of by the annuitant to the RRSP equals the FMV of the property received by the annuitant from the RRSP, we would conclude that there is a bona fide purchase and sale of property. In this case, the cost of the property received by the annuitant from the RRSP will be the FMV of such property (which also equals the FMV of the property given up as consideration for such property).

We trust our comments will be of assistance to you.

Yours truly,

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

??

- 2 -