If the
Advantage Tax rules applied, all the investment management fees paid would be subject to personal income tax as a benefit to the account holder. It was the CRA’s opinion that when investment management fees were paid by the account holder or annuitant, it increased the value of the registered plan, constituting an advantage since more funds remained in the plan and could benefit from the plan’s tax-deferred or tax-exempt status.
The CRA stated that the Advantage Tax rules would be applicable effective January 1st, 2018 (which was later revised to January 1st, 2019); however, in October 2018, it further delayed the starting date indefinitely citing a pending review of the issue by the Department of Finance. The issuance and subsequent update to the CRA’s tax folio on tax advantages and registered plans, S3-F10-C3 - Advantages – RRSPs, RESPs, RRIFs, RDSPs and TFSAs, also failed to address this issue.
Clarity was finally provided in the CRA’s recently issued comfort letter. The letter states that there are no concerns that registered plan holders are tax-motivated when arrangements are made to have the investment management fees paid directly by them and not through the plan. Hence, the CRA does not view the direct payment by the plan holder as an advantage and it is prepared to recommend an amendment to the Advantage Tax rules in the Income Tax Act to confirm this. This proposed amendment is intended to apply for the 2018 tax year and forward although there is currently no timetable on the horizon for the amended legislation required or an update to the CRA’s tax advantage folio.
Crowe Soberman will keep clients up-to-date on any further amendments to this or other CRA tax legislation. For more information, contact
Aaron Schechter or another member of Crowe Soberman's
Tax Group.
This article has been prepared for the general information of our clients. Specific professional advice should be obtained prior to the implementation of any suggestion contained in this article. Please note that this publication should not be considered a substitute for personalized tax advice related to your particular situation.