INVESTMENT MANAGEMENT FEES

In a November 29, 2016 Technical Interpretation (2016-0670801C6, Wurtele, Dave), CRA opined that the advantage tax rules (Subsection 207.01(1)) would likely apply where investment management fees incurred by an RRSP, RRIF or TFSA are paid from outside of the plan by the annuitant or holder.

reviewing fee payment instructions

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 under Subparagraph 207.01(b)(i).

CRA further noted 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.

In these cases, the plan’s controlling individual could be subject to an advantage tax of 100% of the amount of the fees paid (Section 207.05).

CRA will defer the application of this position until January 1, 2018. Investment management fees that are reasonably attributable to periods ending before 2018 may be paid by either the registered plan or the controlling individual with no adverse tax consequences.

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