April 11, 2012

This bulletin is the first in a series that will be published by the Registered Plans Directorate. The bulletins will discuss issues that arise from time to time about the administration of registered retirement savings plans and registered retirement income funds and the Income Tax Act. This technical publication is intended for use mainly by registered retirement savings plan (RRSP) issuers and registered retirement income fund (RRIF) carriers.

This bulletin has information on Bill C-13 as it relates to changes to specimen plans/funds and contracts as a result of amendments to the RRSP and RRIF legislation. The bulletin also explains the new obligation that RRSP issuers and RRIF carriers have to minimize the possibility of RRSP or RRIF trusts holding non-qualified investments, the penalty they face for not complying with this obligation and the tax consequences for RRSP or RRIF trusts when they hold non-qualified investments.

Bill C-13

Bill C-13, which received Royal Assent on December 15, 2011, amended certain provisions of the Act by expanding the existing anti-avoidance rules for RRSPs and RRIFs so they are similar to the anti-avoidance rules that apply to tax-free savings accounts (TFSAs). The registration conditions and other provisions in sections 146 and 146.3 and Part XI.01 of the Act were amended as a result of these changes. For more information about these anti-avoidance rules, please refer to the 2011 Budget questions and answers.

RRSP registration conditions

Paragraph 146(2)(c.4) of the Act previously required, as a condition of registration, that an RRSP not extend an advantage (subject to a list of exceptions) to the annuitant (or to a person not dealing at arm's length with the annuitant) that is conditional in any way on the existence of the RRSP. Paragraph 146(2)(c.4) of the Act is repealed as of March 23, 2011.

Subsection 146(13.1) of the Act previously imposed a penalty on an RRSP issuer if the issuer (or a person not dealing at arm's length with the issuer) extends an advantage to the RRSP annuitant (or to a person not dealing at arm's length with the annuitant) that would not have been allowed under paragraph 146(2)(c.4) of the Act. Subsection 146(13.1) of the Act is repealed for transactions occurring after March 22, 2011.

The RRSP advantage rules are now found in Part XI.01 of the Act and impose a 100% tax if an advantage is extended for an RRSP. The tax is payable by the RRSP annuitant, unless the advantage is extended by the issuer, in which case it is payable by the issuer. RRSPs are now subject to the same advantage rules that apply to TFSAs.

Issuers will need to review their specimen plans to find out whether amendments are needed.

RRIF registration conditions

Paragraph 146.3(2)(f) of the Act does not allow a RRIF to receive property, other than property transferred from a limited number of sources (such as from an RRSP). Subparagraph 146.3(2)(f)(vii) of the Act is amended to replace the reference to a "prescribed provincial pension plan" by a reference to a "specified pension plan." At this time, the Saskatchewan Pension Plan is the only arrangement approved under section 7800 of the Income Tax Regulations to be a specified pension plan.

Paragraph 146.3(2)(g) of the Act previously required as a condition of registration that a RRIF not allow a benefit or loan (subject to a list of exceptions) to be extended to the annuitant (or to a person not dealing at arm's length with the annuitant) that is conditional in any way on the existence of the RRIF. Paragraph 146.3(2)(g) of the Act is repealed as of March 23, 2011.

Subsection 146.3(13) of the Act previously expanded the circumstances under which a RRIF's registration can be revoked under subsection 146.3(11) of the Act. A RRIF's registration is revoked if a benefit or loan is extended to the RRIF annuitant (or to a person not dealing at arm's length with the RRIF annuitant) that would not have been allowed under paragraph 146.3(2)(g) of the Act. Subsection 146.3(13) of the Act is repealed for transactions occurring after March 22, 2011.

The RRIF advantage rules are now found in Part XI.01 of the Act and impose a 100% tax if an advantage is provided for a RRIF. The tax is payable by the RRIF annuitant, unless the advantage is extended by the carrier, in which case it is payable by the carrier. RRIFs are now subject to the same advantage rules that apply to TFSAs.

Carriers will need to review their specimen funds to find out whether amendments are needed.

Non-qualified investments

Issuers and carriers are required under subsection 207.01(5) of the Act to exercise the care, diligence, and skill of a reasonably prudent person to reduce the possibility of the RRSP or RRIF holding a non-qualified investment. Not complying with this obligation may result in the issuer or carrier having to pay a penalty under subsection 162(7) of the Act.

An RRSP or RRIF trust that holds a non-qualified investment at any time in a tax year will continue to be subject to tax under Part I of the Act in line with subsections 146(10.1) and 146.3(9) of the Act, respectively. Income tax is payable on a notional taxable income which is calculated using only the income or loss from the non qualified investment and the full capital gain or capital loss from disposing of such property.

RSP specimen plans and RIF specimen funds that contain language that is inconsistent with these obligations will need to be amended.

Where to get help

Registered Plans Directorate

You can find more information at Savings and pension plan administration.

By telephone

Toll-free in Canada and the United States: 1-800-267-3100.
If you are calling from outside of Canada or the United States, call us collect at 613-221-3105. The Registered Plans Directorate accepts collect calls.

By mail and courier

Due to a building refit spanning multiple years, the Registered Plans Directorate’s mailing address has been temporarily changed. Please use the following address for all correspondence until further notice:

Registered Plans Directorate
Canada Revenue Agency
2215 Gladwin Cres
Ottawa ON K1B 4K9

We welcome feedback on this bulletin. Send comments by email to RPD.LPRA2@cra-arc.gc.ca.