(March 9 – 11:15 ET) – The Canada Customs and Revenue Agency is warning RRSP holders about tax-free withdrawal schemes.

The CCRA (formerly Revenue Canada) says that RRSP-holders risk losing their tax shelter and their RRSP savings outright by participating in schemes that promise tax-free RRSP withdrawals. Typically the schemes involve self-directed RRSPs being used to buy shares in a private company. The funds used to purchase the shares are loaned back to the owner of the self-directed RRSP at low interest.

“If an RRSP is used as security for a loan, the value of the RRSP will be added to the taxpayer’s taxable income. Similarly, if an RRSP is used to purchase shares of a private corporation, and the shares are not a qualified investment under the rules, then the value of the shares will be added to the RRSP holder1s taxable income,” cautions the CCRA.

The CCRA suggests consultation with a knowledgeable tax advisor before taking a
chance on this sort of scheme. “Administrators and trustees are asked to advise clients that there may be tax consequences if non-qualified investments or loans are secured with an RRSP.”
-IE Staff