• Investments in a Registered Plan - A Trap for the Unwary
  • August 17, 2011 | Author: Richard Eisenbraun
  • Law Firm: Borden Ladner Gervais LLP - Calgary Office
  • The June, 2011 Canadian Federal Budget (the Budget) proposes to introduce certain rules under the Income Tax Act (Canada) relating to registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs) (collectively, Registered Plans) that previously applied only to tax-free savings accounts (TFSAs), being (a) the “advantage” rules, (b) certain “non-qualified investment” rules, and (c) the “prohibited investment” rules. The “advantage” rules generally target structures and transactions that may disproportionately shift income or assets into or out of a Registered Plan, or that are otherwise viewed as exploiting or abusing the tax attributes of a Registered Plan. The Budget proposes to replace the income inclusion and deduction mechanism and the 1% monthly tax with respect to Registered Plans that hold “non-qualified investments” with a special tax (refundable in some cases) equal to 50% of the fair market value of the “non-qualified investment”. This bulletin focuses on the “prohibited investment” rules.