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:
Whether an amount received by a trust governed by RRSP as compensation for redemption fees charged by a mutual fund to an investor, constitutes a contribution, a gift or a prohibited advantage to the RRSP trust.
Position:
The compensation is not an advantage, not a gift and not a contribution.
Reasons:
Application of our position to new situation.
5-952610
XXXXXXXXXX L. Roy
Attention: XXXXXXXXXX
November 28, 1995
This is in reply to your letter of September 26, 1995, in which you request our opinion on whether an amount received by a trust governed by a Registered retirement savings plans ("RRSP") as compensation for redemption fees charged by a mutual fund to an investor, constitutes a contribution, a gift or a prohibited advantage to the RRSP trust.
Where an investor redeems mutual fund units, the mutual fund may charge a redemption fee which is paid essentially by reducing the amount the investor would otherwise receive on redemption. Sometimes, a broker will compensate the investor for all or part of this fee, if he agrees to have his mutual fund units redeemed and buy units of a new mutual funds from the broker. In that case, the broker receives a commission for the sale of the new mutual fund units and may direct that it be paid to the investor's account in the form of additional units of the new mutual fund.
In the situation you have described, an individual as an investor in a mutual fund, contributes the sale proceeds of his mutual fund units to a trust governed by an RRSP which in turn acquires mutual fund units from the broker. In that situation, the additional units are credited to the RRSP trust.
Where, in substance, a broker sells at discount units of a mutual fund to the RRSP of an investor as a compensation for redemption fees that the investor had to pay upon the redemption of his units in another mutual fund, the value of the discount would not be considered a contribution to the RRSP by the annuitant nor a gift or an advantage conferred to the plan's annuitant.
The foregoing comments are not rulings and in accordance with the guidelines set out in Information Circular 70-6R2 dated September 28, 1990, are not binding on the Department.
We trust the above comments will be of assistance to you.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy & Legislation Branch
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