Tax memo: Alert for RRSP and RRIF holders

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Action is required if a new “prohibited investment” rule applies to you

(Revised February 3, 2012)

Memo No. 2012-03

This Tax memo updates and replaces our August 29, 2011 Tax memo on this topic by expanding on the circumstances in which the penalty taxes apply.

Newly enacted legislation1 that implements proposals announced in the 2011 federal budget imposes new penalty taxes if:

  • your registered retirement savings plan (RRSP) or registered retirement income fund (RRIF) holds shares of a corporation; and
  • either:
    • 10% or more of any class of shares of that corporation (or of a corporation, partnership or trust that does not deal at arm’s length with that corporation) are owned by you (alone or with persons with whom you do not deal at arm’s length); or
    • you do not deal at arm’s length with the corporation.

Similar penalty taxes will apply if:

  • your RRSP or RRIF holds interests in or debt of a partnership or trust; and
  • either:
    • 10% or more of the fair market value of all interests in that partnership or trust (or of a corporation, partnership or trust that does not deal at arm’s length with that partnership or trust) are owned by you (alone or with persons with whom you do not deal at arm’s length); or
    • you do not deal at arm’s length with the partnership or trust.

1 Bill C-13, An Act to implement certain provisions of the 2011 budget as updated on June 6, 2011 and other measures, received royal assent on December 15, 2011.