18 January 1982 Income Tax Severed Letter

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.

XXXX

W.E. Baumeister (613) 995-0051

January 18, 1982

Dear Sirs:

This is in reply to your letter of December 8, 1981, in connection with the deductibility of certain fees paid by an annuitant to the trustee of his self-administered RRSP.

We should point out that both IT-124R3 , dated March 13, 1978 and IT-124R4 , dated August 31, 1981 (which supersedes IT-124R3 ) refer only to the deductibility of administration fees paid by an annuitant to the trustee in respect of his plan, and not to the deductibility of fees generally. Administration fees charged by the trustee relate to the overall direction or management of the affairs of the RRSP, as contrasted with fees charged for other specialized functions, such as purchasing and selling of investments, financing, etc. It is only these fees paid to the trustee that are deductible by the annuitant in computing his income for the year, provided they are reasonable. Administration fees are usually fixed by a provision of the trust instrument or by statute as a percentage of the fair market value or the book value of the assets in the plan and do not vary widely from trustee to trustee. We consider that administration fees determined in accordance with the foregoing are "reasonable administration fees".

The foregoing should not be interpreted to mean that the trustee would not be entitled to be reimbursed for expenses reasonably and properly incurred in the care of the property in the plan, as in your case, commissions payable to the sales agent which arise from the purchase or sale of securities held by the plan. However, these expenses are expenses of the plan and the trustee will be reimbursed out of plan funds.

Applying the foregoing general comments to your specific questions, our answer is as follows:

1. Administration fees calculated as a percentage of particular investments and sales made by the plan will be considered reasonable only if they do not exceed the amount calculated as a percentage of the value or cost of the plan assets. In other words, if the administration fees were increased to include the brokerage charges or commissions you refer to, we would view those administration fees as unreasonable, resulting in adverse tax consequences.

2. As mentioned earlier, we consider commissions and brokerage fees arising from purchases or sales of securities by the plan to be an expense of the plan. Should the annuitant pay such fees and expenses on behalf of the plan directly to the sales agent, the payment or payments would be a gift made to a plan within paragraph 204.2(1)(b) of the Act and may result in an "excess amount for a year" as defined in subsection 204.2(1) of the Act. Please refer to paragraphs 17 to 19 of Interpretation Bulletin IT-124R4 "Registered Retirement Savings Plans".

This opinion is our best interpretation of the law as it applies generally. It may, however, not always be appropriate in the cir- cumstances of a particular case, and as stated in paragraph 24 of Information Circular 70-6R, it is not binding on the Department.

Yours sincerely,

for Director Non-Corporate Rulings Division WEB/dh

146(5) 204.2