At the 2016 Annual Canadian Tax Foundation Tax Conference CRA Roundtable, CRA announced a change in policy on the payment of registered plan fees by plan beneficiaries.
CRA has been accepting for years that a beneficiary of one of these plans could pay the investment management fees personally without having the plan pay the fee. The obvious benefit is that the amount left in the tax-exempt plan is higher than it would be.
CRA has now announced that it thinks that the increase in plan assets resulting from not having to pay the management fees is a taxable “advantage” to the beneficiary who pays them.
Here are the main points of its recent announcement at the annual Canadian Tax Foundation conference:
“… As a result, the plan’s controlling individual could be subject to advantage tax of 100% of the amount of fees paid.
“To avoid the adverse tax consequences from the application of the advantage tax rules, any existing arrangements in which investment management fees are charged directly to the plan’s controlling individual will have to be changed so that the fees are charged to the registered plan. Should there be insufficient cash in the registered plan to pay the expense immediately and this gives rise to an overdraft, there wouldn’t be any adverse tax consequences.
“… To give the investment industry time to make any system changes that may be required, the CRA will defer applying this position until January 1, 2018.”
It is interesting to think of a person’s being subject to 100% tax on an expense he pays to a third party asset manager. But that is the result.