Principal Issues: Will proposed promotions by an RDSP issuer be advantages as defined in subsection 205(1) of the Income Tax Act?
Position: First promotion, question of fact, but if structured properly may not be an advantage. The second promotion will result in an advantage.
Reasons: First promotion - paragraph (b) of the definition of "advantage" in subsection 205(1) and paragraph 146.4(4)(h). Second promotion will result in a benefit as defined in subsection 205(1) and an advantage (not excluded under paragraphs (a) to (f)).
June 4, 2009
Registered Plans Directorate HEADQUARTERS Christina O'Quinn G. Allen Specialty Products Policy Section 946-3558 Actuarial and Policy Division 18th Floor, Tower B, Place de Ville
2009-032276Registered Disability Savings Plan (RDSP) Advantages
This memorandum is in response to your email sent May 4, 2009 wherein you requested our views concerning two RDSP marketing promotions being proposed to you by XXXXXXXXXX . The first promotion would be an offer by the RDSP issuer to contribute $XXXXXXXXXX to a new XXXXXXXXXX RDSP. XXXXXXXXXX would like to promote this offer XXXXXXXXXX if a potential client would also open a XXXXXXXXXX bank account. Under the second promotion, XXXXXXXXXX would like to implement a XXXXXXXXXX . The offer would be XXXXXXXXXX .
Our Comments
$XXXXXXXXXX Contribution Promotion
Paragraphs (a) to (f), inclusive, of the definition of "advantage" in subsection 205(1) of the Income Tax Act (the "Act") contain exclusions to the definition, for purposes of determining whether Part XI tax may apply. Specifically, paragraph (b) excludes a contribution made by, or with the written consent of, a holder of the plan, from being an advantage in relation to an RDSP. The term "contribution" is defined in subsection 146.4(1) of the Act, in general, as not including an amount paid into the plan under the Canada Disability Savings Act. Paragraph 146.4(4)(h) of the Act contains a registration provision that prohibits contributions by any entity that is not a holder of the plan, except with the written consent of the holder of the plan. Accordingly, in our view, provided the $XXXXXXXXXX promotion is clearly structured to be a contribution by XXXXXXXXXX to an RDSP that is made with the written consent of a holder of the RDSP, the $XXXXXXXXXX promotion would not be an advantage for purposes of the Part XI tax in respect of RDSPs.
XXXXXXXXXX Promotion
The definition of "benefit" in subsection 205(1) of the Act, in general, is defined to include any amount paid or allocated to an RDSP that is represented as a return on investment and that does not reflect open market terms and conditions between parties dealing with each other at arm's length. As the definition of "benefit" in subsection 205(1) is not all inclusive, in our view, the promotion offering XXXXXXXXXX would result in a benefit being provided, and it also appears that the promotion would only be made to RDSP holders and therefore would appear to be contingent on the existence of the RDSP. As none of the exclusions in paragraphs (a) to (f) of the definition of "advantage" would apply to exclude this benefit from being an advantage, in our view, the XXXXXXXXXX promotion would be an advantage for purposes of the tax under Part XI of the Act.
We trust the above comments will be of assistance.
Mary Pat Baldwin, CA
Manager
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch