Section 146

There is no restriction on the currency in which an annuity may be denominated.

An annuity for a fixed term other than that specified in s. 146(1)(i.1)(ii) will not qualify.

Does CRA accept comments in Prochuk for the proposition that day trading in an RRSP trust does not result to carrying on a business for the purpose of 146(4)b)? After noting that the case did not change its position that day trading in an RRSP was a business (as the conclusion reached in the case was limited to day trading in an RRSP not being a relevant factor to determining whether an individual is carrying on a business outside of the plan), CRA then paraphrased s. 146(4)(b) and stated (TaxInterpretations translation):

This signifies that if an RRSP trust carries on speculative day trading activities, it does not have income tax payable on its income derived from its business on condition that the activities of the business are limited to the purchase and sale of qualified investments… .

RC will consider a short sale of shares covered by a long convertible debenture to be similar to the writing of a covered call option.

An RRSP that writes naked call options would be considered to be carrying on a business.

Explanation of why writing covered call options and purchasing call options are acceptable RRSP activities, whereas buying put options is not.

Entering into a spread, for example, simultaneously writing a naked call option with a higher exercise price against a call option purchased by the RRSP, would be indicative of carrying on a business and can subject the RRSP to taxation under s. 146(4).

The mere fact that the annuitant has ceased to be a resident of Canada does not imply that the income of the RRSP becomes subject to tax.

"It is our view that paragraph 146(4)(a) and subsection 146(10) of the Act do not apply where a RRSP buys shares payable on an instalment basis because an obligation to pay instalments does not constitute a loan or borrowed money with a relationship of lender and borrower between the parties."

The writing of naked call options (unlike the writing of covered call options) will be considered to be carrying on a business. Where the RRSP did not have funds to purchase the investments on the exercise of the option and was required to borrow, the income of the RRSP could be taxable under s. 146(4)(a).

An RRSP trust that engages in hedging or short sales might be considered to be carrying on a business rather than investing.

Entering into a spread transaction (i.e., simultaneously writing a naked call option with a higher exercise price against a call option purchased by the RRSP) would be indicative that the RRSP is carrying on a business.

"Where an annuitant of an RRSP or RRIF trust enters into a contract with a person for advice on the purchasing and selling of investments of the trust (i.e., the contract is between the annuitant and the person), it is the Department's position that the fees for such advice are an obligation of the annuitant and not of the RRSP or RRIF trust. We have reconsidered our previous position with respect to the payment of such fees by the annuitant outside of the RRSP or RRIF trust and we are now of the view that the payment of such fees by the annuitant would not be considered a premium or gift contributed to the RRSP or RRIF."

The payment of administration or management fees by an annuitant will constitute the payment of a premium to the RRSP.

Where a broker selling units of a mutual fund to an RRSP reimburses the RRSP for the redemption fee payable by it on redeeming a mutual fund previously held by it, the reimbursement will not be considered to be an advantage pursuant to s. 146(2)(c.4), will not constitute income to the annuitant and will not be considered to be a contribution to the RRSP by the annuitant.

Where an employee contributes a stock option to acquire a share for an exercise price of $3, when the share has a fair market value of $10, the employee will be entitled to a deduction under s. 146(5) of $7.

The reimbursement by brokers or dealers of the redemption fee owed by a registered plan unitholder on the exchange of mutual fund units for units in a mutual fund would not be considered a contribution by the annuitant with respect to an RRSP.

Following the maturation of an RRSP when an annuitant turns 71, she may continue to deduct amounts that were over-contributed to her RRSP so long as she has "earned income" in the previous year.

Discussion of rules governing contributions to an RRSP by a non-resident of Canada.

Annuitants who pay annual mortgage administration fee in respect of mortgages held in their RRSP will be considered to have made a gift to the plan.

An individual who has made an over-contribution in the year he turns 71 may deduct the amount of the over-contribution in subsequent years to the extent permitted by s. 146(5) if he has earned income in those years.

Fees relating to investments of an RRSP (e.g., fees for transfers, investment counselling and brokerage) are expenses of the trust. Accordingly, an annuitant who reimburses the trust for such costs will be considered to have made a contribution to the RRSP.

Contributions to an RRSP trust made to offset expenses of the trust described in IT-124R5, para. 2, represents premiums.

In respect of the 1992 and subsequent taxation years, RC will permit the deduction of contributions made to a spousal RRSP in respect of the deceased by the deceased's legal representatives where the contributions are made within the period from the date of death to 60 days after the calendar year in which the death occurred.

Where funds inside an RRSP (or RRIF) are used to pay administration fees, no benefit or amount is received by the annuitant as a consequence thereof.

The transfer of property of an RRSP to a court as a result of an interpleading will not result at that time in an income inclusion to the annuitant.

"The costs associated with redeeming mutual fund units in an RRSP trust are expenses of the trust and are properly paid for with trust funds." Accordingly, the amount shown on a T4RSP where mutual fund units are redeemed is the net amount rather than the gross amount of the redemption proceeds.

Discussion of application of ss.56(2) and 146(8) where an annuitant wishes to use some or all of the property in his RRSP to purchase a charitable gift annuity.

Bonus interest payments paid by a credit union directly to the annuitant of an RRSP would be included in the annuitant's income under s. 146(8). The credit union would not be penalized pursuant to s. 146(13.1), nor would the benefit be considered to be a prohibited advantage under s. 146(2)(c.4). The payment of the interest to the annuitant would result in the deposit made by the RRSP no longer being a qualified investment.

"Where the legal representative and the spouse as beneficiary of the deceased's estate, jointly direct that the amount that would otherwise be paid to the estate out of or under the deceased's RRSP ... be transferred by the payer directly to a RRSP ... or be used to acquire an annuity under which the spouse of the deceased is the annuitant, the Department would normally accept that such amount has been paid to the deceased's legal representative for purposes of subsection ... 146(8.1) ... . Consequently, provided that the deceased's legal representative and spouse have jointly designated in prescribed form with respect to any such amount, the spouse would be deemed to have received the amount in the year as a refund of premiums ... ."

The taxation year referred to is the taxation year of the estate in which the payment was received.

In finding that the fair market value of mutual fund units held by an RRSP would take into account redemption fees, RC stated that "if units of a fund cannot be transferred between persons dealing at arm's length but must be redeemed, we would expect that the fair market value of the units would be their value otherwise determined less any applicable redemption charges".

Where the estate of the deceased is the beneficiary of an RRSP and the deceased's spouse has an interest in the RRSP only by virtue of being a life tenant under the will, s. 146(8.8) will apply to include the fair market value of the RRSP in the income of the deceased.

Where an annuitant dies prior to the maturity of an RRSP, the deceased annuitant's spouse is the beneficiary and the plan administrator does not complete a direct transfer of the entire RRSP refund of premiums under s. 60(l) to the RRSP of the spouse until subsequent to December 31 of the year following the year of death, a T4RSP supplementary slip with an amount equal to the fair market value of the property held in the plan will have to be issued in the year of death to the deceased annuitant. However, after December 31 of the year of transfer, the surviving spouse could contact the appropriate Tax Services Office to request that the terminal return of the deceased annuitant be amended to allow a deduction under s. 146(8.9) with respect to the fair market value of the property held in the plan and included in the deceased annuitant's terminal return.

RC's assessing policies may not apply if the disbursements out of the RRSP do not satisfy beneficial interests which are valid under provincial law.

Where the annuitant of an RRSP dies after maturity of the plan and the spouse is entitled to 1/2 of the property in the RRSP, no rollover is available because the spouse is not deemed to be the annuitant under the plan. S.146(8.91)(a) applies only when the spouse is to become the annuitant under the plan.

Where an amount paid by an RRSP for an annuity issued by a charity exceeds the fair market value of the annuity, the difference will be included in the income of the annuitant in the year of acquisition.

It is the Departmental practice not to apply the provisions of s. 146(9) to an annuitant where an RRSP has written a covered call option and the holder of the covered call option in fact exercises her right to purchase under the option.

RC does not apply s. 146(9) to the writing of covered call options by an RRSP.

S.146(9) will not be applied to the annuitant where a security of an RRSP is disposed of as a result of a covered call option previously written by the RRSP being exercised.

Where an RRSP holds a mortgage that is subject to proceedings pursuant to a power of sale, the RRSP should proceed in the same manner as any other reasonable person in the circumstances. Where business practice dictates awaiting the outcome of the power of sale proceedings, the same procedure should be followed by the RRSP.

Where an annuitant transfers property that is a non-qualified investment which is subject to s. 207.1(1) of the Act to another of his or her RRSPs, the transferred property will cease to be subject to s. 207.1(1) and will be subject to s. 146(10).

By virtue of ss.146(6) and (10), there are generally no income tax implications for annuitants when foreign currency is disposed of within the same calendar year and there has been no fluctuation in the exchange rate. Accordingly, the "Agency will not apply these provisions where foreign currency is converted to Canadian currency or is used to acquire a qualified investment within a reasonable period of time (usually one month)".

A put option is a non-qualified investment. However, as the writing of a put option does not entail an acquisition of property, s. 146(10) does not apply unless, under the agreement, the RRSP is required to leave margin on deposit with a broker to cover the possible exercise of the option.

Where cash is deposited as margin with a broker then, notwithstanding that such deposit would not be a qualified investment under s. 204(e)(i), s. 146(10) will not be applied to the annuitant if the transaction is concluded within a few days. Similar considerations apply where the RRSP is required to leave cash as margin on deposit with a broker to cover the possible exercise of a put option that the RRSP has written.

Although real property is not a qualified investment for an RRSP, RC is prepared not to apply either s. 146(10) or 207.1(1) where an RRSP acquires real estate through foreclosure or other procedures that are necessary to protect the mortgage investment and as a result of default or other actions of the mortgagor, the original mortgage investment was a qualified investment, and the RRSP holds the real property in the trust for the sole purpose of disposing of it and in fact does so within a reasonable period of time (such as one year).

"It is our view that paragraph 146(4)(a) and subsection 146(10) of the Act do not apply where a RRSP buys shares payable on an instalment basis because an obligation to pay instalments does not constitute a loan or borrowed money with a relationship of lender and borrower between the parties."

The transfer, following the writing by an RRSP of a covered call option, of the underlying securities to a broker or a dealer until the option is exercised or expires will not be considered to be the borrowing of money on the security of those investments for the purposes of s. 146(10)(b).

RC will not apply s. 146(10) or s. 207.1(1) if an RRSP acquires real property as a result of foreclosure of a mortgage that was qualified property as a consequence of the default of the mortgagor, provided that the trust deed disposes of the property within a reasonable period (such as one year).

1. An RRSP trust, which holds shares of Company A that are a non-qualified investment, receives a stock dividend comprising additional shares of the same class. 2. The RRSP trust holds shares of Company X, which are a qualified investment, and receives thereon a dividend in kind of shares of Company Y that are a non-qualified investment. Does s. 146(10.1) or 207.04(1) apply? CRA responded:

In Scenario 1, because the shares of Company A are non-qualified investments, the RRSP trust will be subject to Part I tax pursuant to subsection 146(10.1)… in respect of its income from the stock dividends paid by those shares. In addition, the annuitant of the RRSP will be liable for the tax payable on non-qualified investments… pursuant to subsection 207.04(2)…, the… tax payable is equal to 50% of the fair market value of the additional Company A shares at the time they are received… .

In Scenario 2, the annuitant of the RRSP will be liable to pay the 50% tax payable under subsection 207.04(1) of the Act subject to a possible refund of the tax pursuant to subsection 207.04(4) of the Act as a result of the RRSP trust's acquisition of the non-qualified Company Y shares. Because the shares of Company X are qualified investments, the RRSP trust will not be required to pay Part I tax under subsection 146(10.1)… . in respect of… the in-kind dividend of Company Y shares;

An RRSP acquired shares after March 23, 2011, which were listed on a foreign designated stock exchange and were worth $43 per share, but then became delisted (and, thus, non-qualified investment for the RRSP) when they were worth $11. They then were sold for $29 per share.

In intimating that the RRSP had a gain of $18 per share which was taxable under s. 146(10.1), CRA referred to the rule in draft s. 207.01(6) deeming the shares to have been disposed of and reacquired at $11.

The rollover in s. 146(16) was available to spouses separate as to bed and board.