New anti – avoidance measures

Bill C – 13, which came into force effective March 1,2011, announced the strengthening of anti – avoidance rules to help prevent "aggressive" tax planning strategies, including those that purport to enable RRSP annuitants to access theirRRSP funds without including these amounts in income. The bill introduced new anti – avoidance rules for RRSPs and RRIFs similar to the rules provide for a special tax on certain tax "advantages" that unduly exploit the tax attributes of an RRSP/RRIFon prohibited investment and on non – qualified investments.

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An advantage may generally be described as a benefit obtained from a transaction that is intended to unduly exploit the tax attributes of an RRSP/RRIF, which could include a reduction in the value of an RRSP/RRIF without a corresponding income inclusion. For example, benefits derived from transactions that would not have occurred in a regular, open market between arm’s length parties would be caught, as would payments to an RRSP made on account or in lieu of payments for services. This could include: dividends paid by a corporate client of an individual on a special class of shares held by the individual’s RRSP, in lieu of the individual receiving remuneration for services provided to the corporation and investment income where the income is tied to the existence of another investment, for example, the offering of two type of securities in tandem, where one is held inside an RRSP and one outside. An advantage also includes certain other transactions such s benefits from "swap transactions".

"Prohibited" and "non – Qualified investments" are targeted also. A prohibited investment generally includes debt of the RRSP/RRIF annuitant and investments in entities in which the annuitant or a non – arm’s length person has a significant interest (generally 10 % or more) or with which the annuitant does not deal at arm’s length. A special tax equal to 50% of the fair market value of the investment will apply to an annuitant on annuitant on acquisition of a prohibited investment by his/her RRSP/RRIF (or at the time that an investment becomes prohibited). A non – qualified investment is property that is not a qualified investment as described in the Income Tax Act and the Income Tax Regulations (see the list above).RRSPs/RRIFs that hold non- qualified investments will be subject to a special tax of 50% of the fair market value of the non – qualified investment. www.insuranceplancanada.com

In light of the above, consult your tax advisor before engaging in any RRSP/RRIFplanning that might be seen by the Canada Revenue Agency as being "unduly aggressive".

FOREIGN INVESTMENTS

Restrictions on foreign content of deferred income plans have been eliminated.RRSPs and other deferred income plans are permitted to invest in any kind of qualified investment without regard to whether it is foreign property, provided it meets the other qualifications of a "qualified investment". Described above. www.insuranceplancanada.com

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