2011 Federal Budget—RRSPs—Anti-Avoidance Rules

The federal Budget tabled on June 6, 2011 included no changes to the income tax measures originally announced in the Budget on March 22, 2011.

The Budget proposes to subject Registered Retirement Savings Plans (“RRSPs”) and Registered Retirement Income Funds (“RRIFs”) to certain penalty taxes that currently apply to Tax Free Savings Accounts (“TFSAs”), in respect of “advantages”, “prohibited investments”, and “non-qualified investments”. The existing 100% tax on advantages in respect of TFSAs will apply to advantages in respect of RRSPs and RRIFs. The tax will be payable by the annuitant of the RRSP or RRIF, unless the advantage is extended by a issuer of the plan, in which case the issuer will pay the tax. The 50% tax on prohibited investments and non-qualified investments held in a TFSA will also apply to RRSPs and RRIFs. The annuitant will be liable to pay the tax. Income from prohibited investments in the plan will be considered an “advantage” and subject to the 100% tax described above. These proposals apply to transactions occurring, income earned, capital gains accruing and investments acquired, after March 22, 2011. Some transitional rules apply.

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