Are Changes Coming?: INVESTMENT MANAGEMENT FEES FOR RRSPs, RRIFs, AND TFSAs

In a November 29, 2016 Technical Interpretation, CRA opined that where investment management fees incurred by an RRSP, RRIF or TFSA are paid from outside of the plan (such as by the annuitant or holder) the plan’s controlling individual would likely be subject to a tax equal to 100% of the fees paid.

CRA opined that investment management fees represent a liability of the registered plan trust and should, therefore, be paid using funds from the plan. If paid from outside of the plan, the resulting indirect increase in value of the plan assets would likely constitute an advantage. That is, more assets would be retained in the tax-sheltered vehicle.

CRA further noted that it is not commercially reasonable for an arm’s length party to gratuitously pay the expenses of another party. As such, there is a strong inference that a motivating factor of the above is to maximize the savings in the plan so as to benefit from the tax exemption afforded to the plan.

Recognizing that it is common practice for the holder of these accounts to pay the management fees, CRA indicated they will defer the application of this position until January 1, 2018.

Action Item: Be aware of changes in how investment management fees are charged in the near future to avoid this tax.

Redistribution of this material is prohibited.