The Canada Revenue Agency has issued an alert about possible RRSP/RRIF scams involving promises of tax-free withdrawals.

The CRA said Tuesday that it is finding an increasing number of questionable RRSP and RRIF tax-free withdrawal schemes. It says it has reassessed over 5,000 investors who participated in these schemes resulting in additional taxable income of approximately $250 million. Additional audits of taxpayers and RRSP and RRIF investments are ongoing, and more audits are being initiated, it adds.

Indeed, it warns that investing in such schemes “could result in you losing your entire retirement savings to unscrupulous promoters, as well as a reassessment of your tax returns.”

The CRA counsels that taxpayers should avoid schemes that promise: withdrawal of funds from an RRSP or RRIF without paying tax; immediate access to assets in “locked-in” RRSPs or RRIFs; income tax receipts providing deductions of three or more times the amount invested in an RRSP; and, unrealistic returns on investments.

“Typically, promoters of these questionable schemes direct the owner of a self-directed RRSP or RRIF to purchase a particular investment through a specific trustee. The particular investment could be shares in a company, units of participation in a co-operative, a mortgage, or other types of investments.” it notes.

Taxpayers should avoid these schemes for two reasons, the CRA adds: these arrangements can put their retirement savings at risk, and the full amount of any withdrawal or ineligible investment is included in the taxpayer’s income in the year the investment was made or the withdrawal occurred, even when the savings are lost to the promoters (they may also face interest and penalties for amounts not reported).

“If you are thinking about investing in one of these arrangements, it’s very important that you get independent legal and tax advice. Independent advice means advice from a tax professional who is not connected to the scheme or promoter,” the CRA advises.