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The Canada Revenue Agency (CRA) is finding an increasing number of questionable
registered retirement savings plan (RRSP) and registered retirement income fund
(RRIF) tax-free withdrawal schemes. The CRA is warning 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.
Stats and facts
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To date, the CRA has reassessed over 5,000 investors who
participated in these schemes resulting in additional taxable income of approximately
$250 million. |
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Additional audits of taxpayers and RRSP and RRIF investments
are ongoing, and more audits are being initiated. |
Questionable RRSP/RRIF schemes
Taxpayers should avoid schemes that promise the following:
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withdrawal of funds from an RRSP or RRIF without paying tax—promoters
often promise to return part of the taxpayer's investment by offshore debit or
credit cards, offshore bank accounts, or loan-back arrangements; |
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immediate access to assets in "locked-in" RRSPs
or RRIFs; |
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income tax receipts providing deductions of three or more
times the amount invested in an RRSP; and |
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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.
Taxpayers should avoid these schemes for two reasons:
1. These arrangements can put their retirement savings at risk. In some cases,
the promoter walks away with all the funds and cannot be found. Many Canadians
have lost their entire retirement savings to unscrupulous promoters by participating
in such arrangements.
2. 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. Interest and penalties
may also be levied for amounts not reported.
These schemes are promoted to look legitimate
The promotion of these schemes usually appears very professional, and makes
the schemes appear legitimate. Various promotional methods may be used, such
as the Internet, local newspaper advertisements, and/or promotional meetings.
Promoters often provide opinion letters from professionals that give the impression
that the letter writer endorses the scheme. These letters should not be interpreted
as providing any assurance that these schemes do what they claim to be doing
or that the promised tax benefits are in accordance with the Income Tax Act.
Get professional, independent advice
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.
Come to us before we come to you
The CRA has increased its RRSP compliance activities to include promoter audits
and audits of trust companies. If you have invested in one of these arrangements
and wish to correct previous omissions or errors, you can do so through the
CRA's Voluntary Disclosures Program. If you make a full disclosure before any
compliance enforcement action is started, you may only have to pay the taxes
owing plus interest. More information on the Voluntary Disclosures Program is
available at www.cra.gc.ca/voluntarydisclosures.
If you encounter a questionable scheme, please call 1-800-267-3100 (English).
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