Section 207.1

Subsection 207.1(1)

See Also

Grenon v. The Queen, 2021 TCC 30

non-qualified investments not “included” in annuitant’s income because it was never assessed

In order that the taxpayer’s RRSP could indirectly invest in operating businesses in which he had a management role, he instigated the formation of various unit trusts (the “Income Funds”) which were intended to be mutual fund trusts on the basis that 171 individuals (the “Investors”) - immediate and extended family members, friends, employees, business associates and others - each subscribed $750 for units of each Income Fund. The taxpayer’s RRSP invested a total of $315 million for units of the Income Funds in various years prior to 2009 (i.e., before the effective repeal of s. 207.1(1) and the introduction of s. 207.04(1)), which then invested directly or indirectly in underlying LPs carrying on businesses or making loans to other group entities.

After finding that the Income Funds did not qualify as mutual fund trusts (so that their units were not qualified investments for the taxpayer’s RRSP), and before confirming s. 207.1(1) assessments on the RRSP on the basis that they were not statute-barred, Smith J stated (at para. 479):

Paragraph 207.1(1)(a) excludes from the calculation of the 1% tax, the fair market value of non-qualified investments which have already been included in the income of the annuitant by virtue of subsection 146(10). In this instance, the Appellant was not assessed pursuant to the latter provision, such that the exclusion does not apply. ...

In further finding that s. 207.1(1) did not impose a "penalty" tax because it was imposed in lieu of Pt. I tax uder s. 146(10), he stated (at para. 620):

[W]hen a taxpayer acquires a non-qualified investment in an RRSP, the Minister is (or was during the Relevant Period) given the choice between assessing the annuitant based on the fair market value of the non-qualified investment at the time it was acquired pursuant to subsection 146(10). Alternatively, where the Minister had not done so, the RRSP Trust was required to file a prescribed form and pay a tax of 1% calculated monthly on the value of the non-qualified investment until such time as it was removed from the RRSP.

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 4801 - Paragraph 4801(a) - Subparagraph 4801(a)(i) - Clause 4801(a)(i)(A) distribution of units that included significant purchases by minors and by adults who did not pay for their own units, was unlawful 755
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) purported establishment of “alter ego” MFTs through which an RRSP could invest in operating businesses was an abuse engaging GAAR 605
Tax Topics - Income Tax Act - Section 204.2 - Subsection 204.2(1.1) alleged distribution from non-qualified investment was not an over-contribution 277
Tax Topics - General Concepts - Window Dressing window-dressing is a deception about intention 312
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) CRA’s assessing listed taxable RRSPs in a T3GR global return was not of the taxpayer’s (also listed) RRSP /inappropriate reliance in legal opinion on certificate of fact was carelessness 441
Tax Topics - Income Tax Act - Section 207.2 - Subsection 207.2(3) CRA’s assessment of Pt. XI.1 shown on the T3GR for all RRSPs of one type did not start the normal reassessment period for the taxpayer’s RRSP since no tax shown for it 370
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(d.2) distribution was not lawful because the issuer had not complied with the OM exemption, which was the exemption that it had chosen to rely on 291

Administrative Policy

20 April 2010 External T.I. 2010-0354681E5 - Part XI.1 Tax on RRSP Non-Qualified Investments

s. 207.1 applies to a qualified investment that has become a non-qualified investment

In response to a query as to whether Part XI.1 tax applies to a non-qualified investment if the property was a qualified investment at the time of its acquisition but then becomes a non-qualified investment, CRA stated:

Under subsection 207.1(1), where a trust governed by an RRSP holds a property that is a non-qualified investment at the end of any month, the trust will be subject to Part XI.1 tax equal to 1% of the fair market value of the property at the time of its acquisition. Consequently, subsection 207.1(1) applies to qualified investments that become non-qualified subsequent to the date of acquisition and are held by the trust governed by the RRSP after becoming non-qualified.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 146 - Subsection 146(10) s. 146(10) is inapplicable if investment does not become non-qualified until after its acquisition 91

IC 78-14R4 Guidelines for trust companies and other persons responsible for filing T3GR, T3D, T3P, T3S, T3RI, and T3F returns 1 July 2006

Return filing requirement

1. Paragraph 150(1)(c), subsections 146.1(13.1) and 207.2(1) of the Income Tax Act, and section 204 of the Income Tax Regulations require that a prescribed return be filed annually for every trust governed by a registered retirement savings plan (RRSP), registered retirement income fund (RRIF), or registered education savings plan (RESP). The prescribed return is the T3GR return and the trustee of the RRSP, RRIF, or RESP trust is responsible for filing it. ….

Filing by specified plan groupings

2. You have to file the T3GR return for an RRSP trust, a RRIF trust, or an RESP trust if the trustee transacted any business or permitted any situation to exist that created a tax liability of $2 or more, as explained in paragraphs 3 to 5 below. You can use Form T3GR for a group of RRSP, RRIF, or RESP trusts that are governed by and conform to a particular specimen plan or fund that we have approved, including all amendments that we have approved. If a specimen plan has been amended and some plans differ from the original approved specimen plan, you have to file two separate T3GR returns. Separate branches of a trust company should not file T3GR returns for single approved specimen plan trusts they administer. The trust company should file only one T3GR return for all plans that conform to a particular specimen. When requesting a reassessment for a T3GR return, include the specimen plan number and T account number.

Listing of potential RRSP/RRIF liabilities

3. An RRSP trust or a RRIF trust may be liable for tax if any of the following applies:

  1. the trust held investments in the year that were qualified investments when acquired, but non-qualified investments at any month-end in the year;
  2. the trust borrowed money during the year (other than money used in carrying on a business);
  3. the trust borrowed money (other than money used in carrying on a business) in a previous year that it did not repay before the beginning of the year;
  4. the trust carried on a business in the year;
  5. the last annuitant under the plan died in the second preceding year; or
  6. the trust entered into an agreement described in subsection 207.1(5) of the Income Tax Act to acquire shares of the capital stock of a corporation (from someone other than the corporation) at a price that differed from the fair market value of the shares when acquired.

13 January 1993 T.I. 923826 (November 1993 Access Letter, p. 508, ¶C180-151)

When a public corporation is wound up, a share of the corporation cannot be removed from an RRSP's records and should be valued at its cost amount until such time as it is disposed of.

27 June 1991 T.I. (Tax Window, No. 4, p. 30, ¶1319)

RC will not apply s. 146(10) or s. 207.1(1) if an RRSP acquires real property as a result of foreclosure of a mortgage that was qualified property as a consequence of the default of the mortgagor, provided that the trust deed disposes of the property within a reasonable period (such as one year).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 146 - Subsection 146(10) 53

Forms

T3GR Group Income Tax and Information Return for RRSP, RRIF, RESP, or RDSP Trusts (2011 version)

T3GR-WS (worksheet)

Required listing of taxable plans

Attach a list of all taxable RRSPs, RRIFs, RESPs, or RDSPs registered under this specimen plan or fund. The list must contain the number of the plan or fund, the name and social insurance number of each person who is an annuitant, holder or subscriber under the plan or fund and the amount and type of tax. A comparable list of RRSPs, RRIFs, RESPs, or RDSPs that are not taxable must be available if we request it.

Subsection 207.1(5)

Forms

T3GR Group Income Tax and Information Return for RRSP, RRIF, RESP, or RDSP Trusts

If you are required to pay tax under subsection 207.1(5), complete Form T2000, Calculation of Tax on Agreements to Acquire Shares. To report taxable income or claim a Part XII.2 tax credit, complete Form T3RET, T3 Trust Income Tax and Information Return. ...

For transactions occurring and investments acquired after March 22, 2017, taxes under subsection 207.1(3) on nonqualified property of an RESP, subsection 206.2(1) on advantages in relation to an RDSP, and subsection 206.3(1) on property used as security in relation to an RDSP have been replaced by the current anti-avoidance rules under Part XI.01.