March 2017 Newsletter

If you have a self-directed Registered Retirement Savings Plan (RRSP), Registered Retirement Income Fund (RRIF) or Tax-Free Savings Account (TFSA), your financial institution likely charges you an annual administration fee — perhaps something like $125 per year plus GST or HST. If you have a “fee-based” account where your investment advisor charges you a percentage of the plan’s value in exchange for investment advice and in place of commissions, your annual fees may be much higher.

Until now, these management fees and investment counsel fees for an RRSP, RRIF or TFSA could be paid either from the plan or from your personal, “non-registered” accounts. Paying the fees from your personal account would in effect give you a small addition to the funds in the plan that grow tax-free — or, put another way, would avoid reducing the value of the plan by the amount of the fees. (The fees are not deductible to you for income tax purposes, regardless of whether they are paid from the plan or from your personal account.)

As of June 2018, the CRA will not permit these fees to be paid by you personally. They must be paid from the registered plan. If you pay them from your personal account, the CRA will consider this an “advantage” that you have received from the plan. An “advantage” from an RRSP, RRIF or TFSA is a technical term defined in the Income Tax Act, and is considered a very Bad Thing. In general, the Act imposes a 100% tax on an “advantage”, effectively confiscating it.

The CRA has given the public a year’s notice of this change, to allow financial institutions to adapt. You can expect a letter from your financial institution within the coming year, telling you that from now on the fee will be charged to the plan, and you will no longer be given the option of paying the fee from your personal account.

Last modified on March 14, 2017 12:00 am
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