Financial firms are in the process of refunding monthly penalties collected on non-qualified investments held in registered accounts (RRSPs and RRIFs) over the past nine months.
An advisory published by the Investment Industry Association of Canada sets out an explanation of the refund procedure, which was made necessary by measures announced in last year’s federal budget. In particular, the government proposed switching from charging a 1% monthly penalty tax on non-qualified investments that are held in a registered plan to a one-time tax of 50% of assets, as of March 23, 2011 (when the budget was introduced).
However, firms were still charging the monthly tax since the budget was initially defeated, which was followed by an election, and draft legislation incorporating this change wasn’t released until August. The change became law on Dec. 15, 2011 but is effective retroactive to March 23. As a result, firms are refunding the 1% tax collected since March 22, 2011.
Now, the IIAC has prepared an advisory, in response to the recommendation of two industry committees that a standard text be developed for use by dealers to educate reps and clients on the tax change. It notes that a draft was prepared by IIAC staff, reviewed by a small task force of experts, and then circulated to the IIAC’s RRSP/RRIF Working Group for sign-off.
“At the time of drafting, a number of firms are waiting for instructions [from the Canada Revenue Agency] before making the refunds, others intend to process refunds as soon as possible. A few firms… have either had no penalty tax to return to clients or have already refunded the amounts,” it says.