1 May 2003 External T.I. 2002-0178105 - ADVANTAGE IN AN RRSP

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

Is a donation to a school or organization, given by a credit union when you purchase an RRSP, a prohibited advantage?

Position:

Yes, if the annuitant can direct the payment to the organization of his or her choice.

Reasons: Based on past positions taken with respect to paragraph 146(2)(c.4).

XXXXXXXXXX 						2002-017810
M. P. Baldwin, CA
May 1, 2003 

Dear XXXXXXXXXX:

Re: CU Promotion

This is in reply to your email of December 3, 2002 to the Registered Plans Directorate that was forwarded to our Directorate for reply. You have requested our comments on whether the provisions of paragraph 146(2)(c.4) of the Income Tax Act (the "Act") would apply in a situation where a credit union would make a donation to a school or community organization of $5.00 for every $1,000 contributed to registered retirement saving plans ("RRSPs").

Initially, the promotional program was to permit the annuitant to pick the school the donation was to be made to. This program was changed such that the credit union will make the determination of which school(s) or community organization(s) will receive the $5.00 for every $1,000 of total RRSP contributions made during the specified period.

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. For more information concerning advance tax rulings, please refer to Information Circular 70-6R5 dated May 17, 2002. Copies of information circulars and other publications are available at your local Tax Services Offices or on the Internet at http://www.ccra-adrc.gc.ca/formspubs/menu-e.html. Where the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following general comments, which may be of assistance.

The longstanding position of the Canada Customs and Revenue Agency (the "Agency") is that offers from RRSP issuers of such things as chances to win trips, free appliances, interest-free loans, etc., to purchasers of their RRSPs are advantages that are prohibited by paragraph 146(2)(c.4) of the Act, notwithstanding that the customer could obtain the advantage by some other means such as purchasing a GIC, opening a non-RRSP account, etc. On the other hand, where an institution offers a chance to win a prize to anyone whether or not that person deals with the institution, in our view, the institution is not extending any advantage that is conditional on the existence of an RRSP.

While we are unable to address your specific situation, in our view, a contribution made to a charity or organization based on contributions to an RRSP by an annuitant of the RRSP would be an unacceptable advantage under the provisions of paragraph 146(2)(c.4) if:

1) the annuitant or a person not at arm's length to the annuitant (hereinafter collectively referred to as the annuitant) was not at arm's length with the organization;

2) the annuitant obtained the advantage of directing the payment of the donation to a particular charity(ies) or organization(s) or of permitting someone else to direct the payment;

3) the annuitant received credit for the contribution; or

4) the annuitant obtained the right to claim a tax deduction in respect of the donation.

For the purposes of these conditions, it is our view that an annuitant would be conferred the advantage of being able to direct the contribution, if an RRSP was offered that provided a contribution would only be made to one or more specified organizations.

The above comments are based on our understanding of the law as it applies in general and may or may not be applicable to the circumstances of a particular case. However, they do not form an advance income tax ruling and they are not binding on the Agency.

Yours truly,

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate

c.c.: Ms. France Beaulieu

Registered Plans Directorate