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:
What portion of the "discretionary portfolio management fees" relating to RRSPs or RRIFs would have to be paid by the annuitant and the RRSP or RRIF?
Position:
Management fees are to be paid by the Plan and investment counsel fees by the annuitant.
Reasons:
Question of fact. Fees charged to annuitant for investment counsel are to be paid by annuitant and fees charged to trustee (commissions, brokerage, safe keeping) are to be paid by rrsp.
971160
XXXXXXXXXX M.P. SarazinAttention: XXXXXXXXXX
September 9, 1997
Dear Sirs:
Re: Discretionary Portfolio Management Fees and RRSPs
This is in reply to your letter dated April 24, 1997, wherein you requested clarification with respect to differentiating between management fees and investment counsel fees relating to registered retirement savings plan ("RRSP") and registered retirement income fund ("RRIF") trusts. Specifically, you would like us to address discretionary portfolio management fees relating to a contract between the annuitant and a person (other than the trustee of the particular plan) to manage all aspects of the decision making regarding the investments of the trust as well as the implementation of those decisions. We acknowledge receipt of the additional information provided in your facsimile dated May 12, 1997.
It is our understanding that discretionary portfolio managers ("DPM") are registered with provincial securities commissions which allows them to manage client assets (including RRSP and RRIF plans) on a discretionary basis. Generally, an individual will enter into a contract with the DPM and, at the same time, a self-directed RRSP or RRIF will be established with a trust company. The RRSP or RRIF application form includes a section wherein the DPM is appointed agent for the RRSP or RRIF annuitant thereby allowing the DPM to instruct the trustee to acquire and dispose of securities that are owned by the RRSP or RRIF trust. The DPM may also enter an agreement with the trustee whereby the trustee will appoint the DPM as its agent so that the DPM may acquire and dispose of investments on behalf of the trustee. The trustee, as custodian of the securities owned by the RRSP or RRIF trust, maintains accounting records for the trust, receives and collects income relating to the securities owned by the trust and provides the annuitant with information regarding the performance of the RRSP or RRIF trust. The DPM provides the annuitant with reports on the securities held by the trust during the reporting period including the performance of the trust for the reporting period.
INVESTMENT MANAGEMENT FEES
Investment management fees relate to the administration or management of the property in an RRSP or RRIF trust. The Department has supplied a description of these fees in paragraph 4 of Interpretation Bulletin IT-238R2 as normally relating to the manager's services of providing custody of securities, maintenance of accounting records, collection and remittance of income, and the right to buy and sell on behalf of the owner using its own judgement. These fees usually occur when an agency agreement is entered into between a plan issuer and an agent such as an investment broker. This agreement would allow the agent to provide certain administrative and investment functions for the issuer (as more fully described in paragraph 14 of Information Circular IC 72-22R9 for RRSPs and paragraph 27 of Information Circular IC 78-18R5 for RRIFs).
The fees charged to the trustee by the DPM for brokerage, commissions and custodial charges would be considered management fees which represent expenses of the RRSP or RRIF trust and when paid with funds within the plan do not result in any tax consequences to the annuitant.
When the annuitant pays these fees on behalf of the RRSP, the payment will be viewed as a payment of a premium to the RRSP for purposes of section 146 and Part X.1 of the Act. Payment of RRIF trust expenses by an annuitant is prohibited by paragraph 146.3(2)(f) of the Act and accordingly, if such a payment is made by the annuitant, in the year the payment is made, there will be an income inclusion to the annuitant equal to the fair market value of the RRIF property pursuant to subsection 146.3(11) of the Act.
INVESTMENT COUNSELLING FEES FOR ADVICE
Investment counselling fees for advice relate to expenses incurred to obtain an investment strategy regarding the specific investments of a particular portfolio from a person whose business it is to render such a service.
Based on the arrangements we have seen to date, where an annuitant sets up a self-directed RRSP trust, the trust agreement entered into by the annuitant and the trustee provides that the trustee of the RRSP takes direction from the annuitant regarding the purchase and sale of investments in the RRSP. In these situations, the investment strategy and decisions are the responsibility of the annuitant and, where an expense is incurred for investment counselling fees related to such strategy and decisions, it is the Department's position that such fees are the obligation of the annuitant and not of the RRSP trust. This would be the case either where the advice is provided directly to the annuitant or the annuitant instructs the adviser to provide it directly to the trustee.
Where an annuitant contracts with a DPM for investment strategies relating to a self-directed RRSP or RRIF trust, the DPM's fees would be considered fees for the provision of investment counselling to the annuitant and would be the responsibility of the annuitant. Where such fees are paid by the RRSP trust, we consider the annuitant to have received a benefit from the RRSP which must be included in the annuitant's income.
As the Department had previously taken the position that such fees are not deductible to the annuitant (per paragraph 4 of Interpretation Bulletin IT-124R6), new paragraph 18(1)(u) of the Income Tax Act only confirms this treatment.
This same principle would apply to a trust governed by a RRIF where the annuitant provides the trustee of the RRIF with direction regarding the purchase and sale of investments in the 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
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1997
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1997
Email this Content