CRA confirms advantage tax rules relief

CRA confirms advantage tax rules relief

The Canada Revenue Agency has confirmed that taxpayers will not be penalized if they pay RRSP and TFSA account fees from outside the account.

Last week, the Department of Finance released a so-called “comfort letter” to commercial tax information providers stating that the department will recommend that the minister amend the Income Tax Act’s definition of “advantage” to exclude the practice of paying for investment management fees from funds outside of registered plans (including TFSAs).

The letter’s release ended nearly three years of tax uncertainty for investors and consultation efforts from industry groups. Ever since the CRA announced in 2016 that paying registered plan fees from outside accounts would incur a tax penalty equivalent to the fee, industry groups had been telling the CRA that clients who pay fees outside registered accounts aren’t usually tax-motivated and advocating for the CRA to reverse its position.

CRA spokesperson Dany Morin confirmed in an email that the agency will adhere to the comfort letter.

“Until the proposed amendment is enacted into law, the CRA will continue to administer the advantage tax rules in accordance with the relief proposed in the comfort letter,” Morin wrote.

The CRA will also update its advantages folio after Finance updates the definition of “advantage.”

“The CRA will update Income Tax Folio S3-F10-C3, Advantages – RRSPs, RESPs, RRIFs, RDSPs and TFSAs once the proposed amendment is enacted into law,” Morin stated.

The CRA’s position on registered account fees was expected to be laid out in the advantages folio when it came out Oct. 1, 2018. The folio’s section on “fees and expenses” does not currently address registered account fees.

Source: Investment Executive

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