2018-0750591I7 Application of subsection 207.04(3)

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether subsection 207.04(3) now applies with respect to RRSP and RRIF investments acquired before March 23, 2011.

Position: Yes. The comments in 2011-042604 are no longer applicable.

Reasons: Subsection 207.04(3) was subsequently amended by S.C. 2013, c. 40, ss. 75(2) with effect from March 23, 2011.

Author: Wurtele, Dave

Section: 207.04(3)

                                                                                                             August 23, 2018

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                                                                                                            D. Wurtele


      Application of subsection 207.04(3)

This is further to our discussion regarding the following comment that we made in TI 2011-042604 about the lack of relief afforded by subsection 207.04(3) (footnote 1) to RRSP or RRIF investments acquired before March 23, 2011:

      Subsection 207.04(3) of the Act applies where an RRSP or RRIF holds a property that is both a non-qualified and prohibited investment. In these circumstances, the property is deemed not to be a non-qualified investment and therefore any income earned and capital gains realized on such a property will not be subject to tax in the hands of the RRSP or RRIF trust under subsection 146(10.1) or 146.3(9) of the Act. (The property remains a prohibited investment subject to the rules in Part XI.01 of the Act.)  However, this relieving provision does not apply in respect of investments acquired before March 23, 2011 except in the situation where the investment first became prohibited after October 4, 2011 or first became non-qualified after March 22, 2011. Consequently, an investment that first became prohibited or non-qualified before those respective dates will not benefit from this provision. As a result, income earned by an RRSP or RRIF trust after March 22, 2011, and the portion of a capital gain accrued after March 22, 2011, on such an investment may be subject to tax both as an advantage under amended section 207.05 of the Act and also under existing subsection 146(10.1) or 146.3(9).

Subsequent to the issuance of TI 2011-042604, subsection 207.04(3) was amended by S.C. 2013, c. 40, ss. 75(2) to extend its application to another provision of the Act.  This amendment, which replaced subsection 207.04(3) in its entirety, was deemed to have come into force on March 23, 2011.

It is our view that this amendment resolved the double taxation problem such that pre-March 23, 2011 investments can now benefit from the application of the rule.

We trust these comments will be of assistance.

Yours truly,


Dave Wurtele
Acting Section Manager
for Division Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch


Note to reader:  Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 Unless as otherwise stated, all legislative references in this document are to the Income Tax Act (the “Act”).

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