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RRSP/TFSA Management Fees: Possible Tax Implications?

Date: 07/21/17

Category: Tax and Estate Planning, Investing

On November 29, 2016 the CRA released a Technical Interpretation (TI) regarding investment management fees incurred by an RRSP, RRIF or TFSA.

 

The TI addressed the situation where investment management fees were paid by the annuitant (account holder) personally and NOT via the registered plan.

 

The CRA’s opinion is that the fees are a liability of the plan/trust itself and as such should be deducted directly from the plan/trust rather than paid from an alternate source.

 

Payment of the fees outside of the plan/trust artificially increases the value of the plan leading to a taxable benefit as the plans are tax-shelters. The CRA’s proposed position is that the fees paid outside of a tax-sheltered plan would likely be subject to TAX EQUAL TO 100% OF THE FEES PAID.

 

Per the CRA it is not commercially reasonable for an arm’s length party to gratuitously pay the expenses of another party. Therefore, they infer that the motivating factor is to maximize the savings in the plan and obtain a tax benefit.

 

The CRA has recognized that this may be common practice and has indicated that they will defer the application of this position until January 1, 2018.

 

SO WHAT DO YOU NEED TO DO?

 

It’s simple: Stop paying your RRSP/RRIF/TFSA etc. fees from outside of the plan itself, immediately.

 

Pretty easy right?

 

Fabio Campanella CPA, CA, CFP, CIM is a co-founder of Praetorian Wealth Advisory in Toronto, ON (www.praetorianadvisory.com) and Campanella McDonald LLP (www.cmllp.com) in Oakville, ON.

 

 

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