In response to a query on whether the income tax treatment of settlement payments made to RRSPs and RRIFs also applies to payments made to TFSAs, RESPs and RDSPs, CRA first summarized the treatment of the former as follows:
The CRA’s long-standing position regarding the tax consequences of a settlement payment made to an RRSP or RRIF in respect of an actionable loss suffered on a plan investment is that the payment will not constitute a contribution or gift to the plan and will not result in an income inclusion to the annuitant. The same applies if the payment is made to the annuitant but returned to the plan within a reasonable time. Generally, we consider a reasonable time to be the later of six months from the time the payment is received and the end of the tax year in which it was received. If the plan no longer exists or has matured, the payments may be made into another RRSP or RRIF of the annuitant. However, if the settlement payment is retained by the annuitant, we consider the annuitant to have received the payment as a benefit under the plan. The payment is included in the annuitant’s income under subsection 146(8) (RRSPs) or subsection 146.3(5).
The position is based on the surrogatum principle, which generally provides that the tax consequences of a settlement are based on the nature and purpose of the settlement and the amount it is intended to replace.