Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
May 24, 2001
XXXXXXXXXX
Dear XXXXXXXXXX:
The Honourable Martin Cauchon, Minister of National Revenue, has asked me to reply to your correspondence of March 20, 2001, in which you refer to articles in the Montreal Gazette concerning the Harris case and the taxation of funds withdrawn from registered retirement savings plans (RRSPs) by many Canadians victims of a scheme.
The Canada Customs and Revenue Agency (CCRA) is responsible for administering and enforcing the Income Tax Act, while the Department of Finance is responsible for tax policy and any proposed changes to the Act. The CCRA is committed to applying the tax legislation consistently and fairly, which includes collecting the full amount of tax owing under the law. However, the amount of tax payable for a particular year is based on the law that is in force at that time, and the CCRA does not have the discretion to change the legislation.
Generally, the Act currently provides that any person residing in Canada who owns taxable Canadian property may leave Canada without having to pay tax on this type of property at the time of departure. However, when the former resident sells the taxable Canadian property, any capital gain realized on the sale is subject to tax in Canada, unless the law is affected by a tax treaty between Canada and the new country of residence. As a result of legislation tabled by the Department of Finance, any person, including a trust, who leaves the country or transfers property from Canada on or after October 2, 1996, will pay tax on most capital gains that have accrued in Canada up to the time of departure. Exceptions to this rule will include gains that accrue on Canadian real estate and Canadian business property, which can always be taxed when they are ultimately sold.
The confidentiality provisions of the Act are fundamental to the integrity of a self-assessment system and the CCRA takes its responsibility of maintaining confidentiality very seriously. While the courts have allowed the court challenge of Mr. Harris to proceed, they have agreed that the case should proceed under special management of the court in order to protect taxpayer confidentiality.
The taxation of the withdrawal of funds from RRSPs applies without regard to an individual's wealth. In fact, individuals with low income will be able to take advantage of tax rates lower than those that apply to individuals with high income. The taxation of withdrawals is appropriate since contributions to RRSPs are deductible in computing income.
It is unfortunate that some promoters of financing schemes promise individuals that they can make tax-free withdrawals from their RRSPs. Typically, the scheme involves using an individual's self-directed RRSP to purchase shares of a private company. The funds used to purchase the shares are then loaned back by the promoter to the individual at low or no interest. As a result, the RRSP does not earn any income. It is also possible that the funds may never be returned to the RRSP. Individuals who participate in these kinds of schemes risk losing their retirement savings along with the tax benefits associated with RRSPs. If an RRSP is used as security for a loan, the value of the RRSP will be added to the individual's income. Similarly, if an RRSP is used to purchase shares of a private corporation and the shares are not a qualified investment under the RRSP rules, the value of the shares will be added to the individual's income.
The CCRA posted a Fact Sheet on its Internet web site in March 2000 alerting owners of self-directed RRSPs to be cautious with tax-free withdrawal schemes. Furthermore, the Ontario Securities Commission, the Quebec Securities Commission and the Ministère du Revenu du Québec are actively examining these schemes.
I appreciate the opportunity to address your concerns.
Yours sincerely,
Bill McCloskey Assistant Commissioner Policy and Legislation Branch