7 November 2002 External T.I. 2002-0145125 - SPONSOR FEES GROUP 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:

Can certain costs incurred by a group RRSP sponsor be paid by the trust governed by the RRSP?

Position: It is a question of fact.

Reasons:

Only the costs that belong to the group RRSP may be paid from the funds held by the group RRSP. Without any information, we could not make this determination.

XXXXXXXXXX 2002-014512
W. C. Harding
November 7, 2002

Dear XXXXXXXXXX:

Re: Group RRSP Expenses

This is in reply to your letter of May 29, 2002, with reference to our reply to you of January 21, 2001, (our file 2001-011351) requesting further clarification of our views regarding the payment of costs incurred in the administration of a group registered retirement savings plan (a "Group RRSP").

Written confirmation of the tax implications inherent in particular situations, may only be provided by this Directorate when the transactions involved are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in the Canada Customs and Revenue Agency ("CCRA") Information Circular 70-6R5 dated May 17, 2002. Where the particular transactions are completed, the enquiry should be addressed to the relevant District Taxation Office. We are, however, providing the comments that follow below that relate to the possible application of the Income Tax Act (the "Act"). These are general in nature and are not binding on the CCRA.

Our Comments

The structure of a Group RRSP must first be identified in order to consider the tax treatment of any expenditure. Generally, a Group RRSP may be established under an insurance contact and in particular under a segregated fund insurance contract, or as a trusteed arrangement. If the arrangement is an insured RRSP, the employees may be covered by a single contract and investments held under the Group RRSP may be commingled in a single fund. In this case, expenses incurred may represent employer expenses incurred under the insurance contract, or expenses of the annuitants. However, if the Group RRSP is a trusteed arrangement, the property held for the benefit of each annuitant must be held under separate trusts. In this case, the expenses incurred may represent employer expenses incurred in the operation of the Group RRSP plan, expenses of the RRSP trust, or expenses of the annuitant.

In your first submission you stated that a plan sponsor, generally the employer, may act as agent for its employees and may incur costs relating to the selection and monitoring of the investment fund providers used by the Group RRSP and may incur costs relating to the provision of general investment information and education to the members of the Group RRSP. You noted that the industry practice in the trust company sector is to have the Group RRSP members pay for such expenses and you asked whether the employer could collect its costs for these expenses from the Group RRSP either as a charge against the members' accounts or as a reduction in the investment return earned by the plans.

As we indicated in our first response, the costs incurred by an RRSP trustee in the overall direction and management of the affairs of an RRSP trust are generally referred to as RRSP administration costs. These costs are costs of the RRSP and should be paid with the funds held within the RRSP. We also noted that the payment of management fees relating to an RRSP trust by an annuitant will not constitute a contribution to the RRSP, and the payment of investment counsel fees by an RRSP trust will not result in the receipt of a benefit by the annuitant from an RRSP trust. Consequently, these fees will be treated the same as administration fees, in that such fees can be paid by the trust without any income inclusion or paid by the annuitant with no deduction. These positions apply to group RRSPs and to regular RRSPs.

We concluded our initial response by noting that the determination of whether specific expenses incurred by a plan sponsor in respect to a Group RRSP would constitute employer expenses, RRSP administration fees, RRSP management fees, RRSP investment counsel fees or expenses of the group RRSP members is a question of fact that can only be determined after a review of all of the related facts that apply in a specific situation. However generally, financial/retirement planning services (including tax planning, estate planning, education, retirement planning or investment strategy) would be expenses of an employee that should be paid by the employee. Accordingly, if the expenses are paid by the RRSP trust, the amounts paid should be included in the employees income under subsection 146(8) of the Act.

In your current submission you identify some of the plan related tasks and services employers expect to encounter when ensuring the smooth operation of their retirement programs and the fulfillment of their fiduciary obligations. Some of these expenses include:

1. Professional and legal consultation re: plan design and other plan related issues;

2. Market research of plan and investment fund providers;

3. Periodic performance review of service providers;

4. In-house plan administration (including staff salaries and benefits);

5. Plan accounting and audit fees;

6. Investment information and education seminars for both plan members and employer representatives;

7. Investment and retirement information and planning tools (including specialized magazines, legal and technical reference tools, software and subscription fees to specialized Internet sites); and

8. Translation, printing and postage costs.

As we noted previously, some of these items appear to represent business expenses, some appear to be expenses of trusts covered by the Group RRSP and others appear to be represent member expenses. Accordingly, we are not able to provide general comments on whether any of these items could be paid out of any RRSP trusts established under a Group RRSP except in the context of an advance income tax ruling requested in the manner described above. However, we can expand on our prior comments as follow:

? If an employer is, in fact, incurring expenses as the legal agent of its employees, it would be difficult to conclude that any expenses could be incurred as expenses of either the employer or the RRSP trusts;

? An employer may incur expenses of its own accord and also agree to pay other costs as the agent for the trusts governed by the Group RRSP or the employees. Expenditures incurred by the employer would normally reflect deductible expenses of the employer. However, they may also reflect the payment of taxable benefits to the employees. Generally, expenditures incurred by an employer for the establishment and overall administration of a Group Plan, and not the specific trusts, will not result in a taxable benefit to the employees because they do not confer an economic advantage on the employees. However, expenditures made by an employer on behalf of an RRSP trust or the employee will generally result in the payment of a taxable benefit. Similar considerations would have to be made in respect to expenditures made by an Employer in respect of an insured Group RRSP.

You have also requested that we provide comments on similar expenditures made in respect to deferred profit sharing plans ("DPSPs"). In general, the same commentary provided in this letter and in our prior letter would apply. However, historically, it has been concluded that the establishment and administration of a DPSP by an employer does not, in and of itself, normally provide an economic advantage to the employees.

We trust these comments will be of assistance.

Yours truly,

Roberta Albert, C.A.

for Director
Financial Industries Division
Income Tax Rulings Directorate