Translation disclaimer
This translation was prepared by Tax Interpretations Inc. The CRA did not issue this document in the language in which it now appears, and is not responsible for any errors in its translation that might impact a reader’s understanding of it or the position(s) taken therein. See also the general Disclaimer below.
Principal Issues: [TaxInterpretations translation] Is it possible to transfer an individual's RRSP to a trust set up by the individual for the individual’s exclusive benefit without adverse tax consequences?
Position: No
Reasons: This transfer constitutes an amendment to the plan with the consequences described in subsection 146(12) of the Act.
2004-007758
XXXXXXXXXX Michelle Desrosiers
Notary, M. Fisc.
July 27, 2004
Dear Sir,
Purpose: Trust governed by a registered retirement savings plan ("RRSP")
This is further to your letter of May 19, 2004 regarding whether an individual can transfer his RRSP to a trust set up by him for his exclusive benefit, without any adverse tax consequences.
Your question arises from the Supreme Court of Canada decision in Scotia McLeod Inc. v. Bank of Nova Scotia and Guy Thibault, 2004 SCC 29, which deals with the non-seizability of self-directed "protected" RRSPs offered in Quebec, and in which Justice Deschamps, on behalf of the Court, referred to the potential for establishing a trust for the holding of an RRSP, which could provide the annuitant with the benefit of the desired non-seizability:
RRSPs, by their nature, cannot be assigned a one-size-fits-all label. They may establish rules that allow for the purchase of a life insurance policy or annuity that is exempt from seizure, and even for a trust to be constituted. To accomplish that, however, they must comply with the rules that apply to those contracts.
In this transaction, the original holder of the RRSP would be the settlor and beneficiary of the trust and one of the trustees. The RRSP would then be registered in the name of the trust and the transfer to the trust would be made by way of a trust donation.
Unless otherwise indicated, all statutory references herein are to provisions of the Income Tax Act (the "Act").
The situation you have indicated in your request appears to relate to an actual situation involving a specific taxpayer. As explained in Information Circular 70-6R5, it is not the Directorate's practice to comment on proposed transactions involving specific taxpayers otherwise than in the form of an advance tax ruling. We are, however, prepared to provide the following general comments, which you may find useful.
Comments
Under the definition of retirement savings plan (RSP) in subsection 146(1), the following entities or persons may issue RRSPs:
(a) companies licensed to carry on an annuities business in Canada (e.g., insurance companies);
(b) Canadian trust corporations;
(c) corporations licensed by the Governor in Council to issue investment contracts for use in RRSPs;
(d) a depository that, in accordance with section 146, meets one of the following conditions:
(i) is a person who is, or is eligible to become, a member of the Canadian Payments Association
(ii) is a credit union that is a shareholder or member of a body corporate referred to as a “central” for the purposes of the Canadian Payments Association Act.
According to this definition, these entities may issue such plans as long as the amounts deposited in them are to be used, invested or otherwise applied by that corporation or that depositary, as the case may be, for the purpose of providing for the individual, commencing at maturity, a retirement income.
Retirement income means an annuity, whether or not for life, that is payable to the annuitant or the annuitant's spouse, if any, and that is issued by any of the persons described above with whom an individual may have entered into a contract or arrangement that is an RSP.
Subsection 146(1) defines an annuitant as, until such time after maturity of the plan as an individual’s spouse or common-law partner becomes entitled, as a consequence of the individual’s death, to receive benefits to be paid out of or under the plan, the individual referred to in the definition of RSP for whom, under a retirement savings plan, a retirement income is to be provided. Thereafter, the annuitant is the spouse or common-law partner of that individual.
In this case, the annuitant of the transferred RRSP is the trust. This requires that the plan be amended to make the change in annuitant effective.
Paragraph 146(12)(a) provides that where, at a date subsequent to the registration of a plan, an RRSP is revised or amended or a new plan is substituted for it (an "amended plan"), and the amended plan does not comply with the requirements for registration under section 146, the amended plan is deemed not to be an RRSP.
Paragraph 146(12)(b) provides that the taxpayer who was the annuitant under the plan before it became an amended plan shall, in computing the taxpayer’s income for the taxation year that includes that day, include as income received at that time, an amount equal to the fair market value of all the property of the plan immediately before that time.
Although subsection 104(2) deems a trust to be an individual for the purposes of the Act, certain conditions set out in subsection 146(2) regarding the acceptance of the plan for registration cannot be satisfied by a plan under which the annuitant is a trust. For example, the plan will not be able to provide for a maturity earlier than the end of the year in which the annuitant attains the age of 69.
Consequently, we are of the view that a taxpayer cannot transfer the taxpayer’s RRSP to a trust without tax consequences. However, the RRSP property can be transferred to another RRSP without tax consequences. To do so, the issuing entity must be one of those described above and the plan must comply with the registration conditions set out in the Act.
Best regards,
Section Manager
For the Director of the Division
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch
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