For the first time, holdings within registered retirement savings plans and registered retirement income funds (registered plans) can be considered prohibited investments—exposing annuitants of registered plans that hold prohibited investments to onerous penalty taxes.
This change can affect annuitants of registered plans that hold a share of, interest in or a debt of an investment fund. At particular risk are fund businesses that aim to be aligned with their investors, such as in the hedge fund industry, through personal investment by the principals in their own funds.
The prohibited investment rules previously applied only to tax-free savings accounts. They were extended to registered plans by the 2011 federal budget, and draft legislation and regulations released by the Department of Finance on August 16, 2011.