23 April 1997 External T.I. 9706445 - FEES PAID IN RESPECT OF AN 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 Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Treatment of fees incurred in respect of an RRSP

Position:

1) admin or trustee fees can be paid by either annuitant or rrsp;
2) management fees are an expense of the rrsp;
3) investment counselling fees for advice to the annuitant are an expense of the annuitant;

Reasons:

1) There is support for treating the administration fees as either an expense of the RRSP or the annuitant.

2) Management fees are for managing the property of the rrsp trust;

3) investment counselling fees are contracted for by the annuitant.

XXXXXXXXXX 970644

April 23, 1997

Dear XXXXXXXXXX:

Re: RRSP and RRIF Related Expenses

This is in reply to your letter of March 4, 1997, in which you ask additional questions in follow-up to our letter to you of November 19, 1996. Your questions and our replies are as follow.

Question 1

Why did the Federal Budget Highlights and subsequent newsletters from various accounting firms mention the inability to deduct the investment counselling fees as being new at March 5, 1996 despite IT 238R2 being dated 1983?

Our Comments

As part of the March 6 Budget documentation, the Department of Finance issued the booklet entitled "Budget 1996 - Budget Plan". At page 150 of this Booklet it states:

"Elimination of the deduction for RRSP and RRIF Administration fees

At present, administrative fees for RRSPs and RRIFs are deductible if paid outside the plan. Since other RRSP and RRIF investment expenses are not deductible and these plans already provide generous tax deferrals, the budget proposes to eliminate the deduction for such fees paid on or after budget day."

While we can not speak for the Department of Finance, it is our view that the term "administrative fees" as used in this quotation refers only to plan administration fees. These are the fees that relate to the overall direction and management of the affairs of an RRSP or RRIF and are the fees that were previously deductible if paid by the annuitant of a plan, but will no longer be deductible if the proposal is passed. As noted in the quotation other investment expenses of an RRSP have never been deductible by the annuitant. However, in your question you also refer to the disallowance of "investment counsel fees". Please note that investment counsel fees may not be treated the same way as other investment related fees.

The determination of whether investment counsel fees or a portion thereof would be considered expenses of a RRSP or RRIF trust is a question of fact that can only be determined after a review of all of the facts pertaining to each particular situation. However, where an annuitant of an RRSP or RRIF trust enters into a contract with a person for advice on the purchasing and selling of investments of the trust (i.e. the contract is between the annuitant and the person), it is the Department's position that the fees for such advice are an obligation of the annuitant and not of the RRSP or RRIF trust. Accordingly they will not form a contribution or gift to the RRSP. As stated in paragraph 4 of the enclosed Interpretation Bulletin IT-124R6, however, such fees are not deductible to the annuitant pursuant to paragraph 20(1)(bb) of the Income Tax Act (the "Act") because the annuitant is not the owner of the investments.

Question 2

Does page 3 of the January 1997, "Royal Trust MoneyGuide" accurately reflect the final decisions of Revenue Canada regarding RRSP and RRIF administration fees, investment management fees and counselling fees.?

Our Comments

The discussion in this guide does not reflect the above comments on investment counselling fees. It also provides general statements on the Department's position which may or may not apply to specific situations. Otherwise the comments appear to provide a reasonable generalization of the Department's current position.

Question 3

Can a swap be made into an RRIF without causing a deregistration of the RRIF?

Our Comments

In your letter you defined a swap as being an exchange of one property held inside a RRIF (for example, cash) for another property held outside of the plan (for example, a T-bill) where the properties have an equal value.

Generally where property is exchanged in the manner described, it will be treated as a purchase and sale of property between the RRIF trust and the annuitant and will not cause a deregistration of the RRIF. Please note, however, that the exchange must be made at fair market value or significant unintended consequences may arise. Furthermore any capital losses from the disposition of the property by an annuitant of a RRIF to the RRIF will be deemed to be nil.

Question 4

What documentation is required by Revenue Canada to ensure that all assets of a self directed RRSP are transferred to a self-directed RRIF?

Our Comments

We are not sure what your concern is in relation to this question. However, the Act provides that a RRIF may only accept property as consideration (ie, a contribution) where it is directly transferred from one of several types of arrangements including an RRSP. Form T2033 is used by an annuitant to request a direct transfer by the trustee of an RRSP or RRIF. There is nothing in the Act that requires all property held in an RRSP to be transferred to a RRIF.

We trust the above comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch