| August 1st, 1991 | |
| Rulings Directorate | |
| P. Spice | |
| Mrs. Stella Kotlar | 957-3496 |
| Director | |
| Registered Plans Division | |
| 7-910634 |
Subject: 24(1)
In your memorandum of February 25, 1991, you asked us to comment on the issue of whether an RRSP contribution could be purchased through a credit card transaction. You also asked whether the for an RRSP contribution than for other "purchase" transactions could be considered an "advantage" within the meaning of paragraph 146(2)(c.4) of the Income Tax Act (the "Act"). Your queries relate to the above-noted promotion
24(1)
With respect to the first issue, when an annuitant contributes monies to an RRSP as defined under subparagraph 146(1)(j)(ii) of the Act, he or she is not making a purchase. There is an arrangement between the trustee and annuitant for the former to hold the funds, invest them and, at a certain date, provide a retirement income. Such an RRSP contribution is similar to a deposit in a bank or an investment. We have difficulty in understanding how the 24(1) would treat such a contribution as a purchase.
With respect to the second issue, if in fact the acquisition of an RRSP by use of a credit card was a purchase, the 24(1) for the RRSP acquisition as compared to other purchases would not, in our view, constitute an "advantage" within the meaning of the above noted provision. There is certainly a distinction or difference in treatment, but it is not positive or beneficial. The definition of advantage (Concise Oxford Dictionary) is "better position, precedence, superiority" a secondary meaning is "beneficial feature. Being 24(1) than another cardholder who uses the card for other purchases does not place one in a better position.
The explanation provided in the letter of February 18, 1991, from 24(1) to Ms Bonnie Greer of your division (a copy of which was provided with your memorandum to us) did not address this problem. 24(1) did not provide a copy of the Cardholder Agreement or of the rules which he said permitted 24(1) to legally treat the contributions as a purchase. The fact that a cash advance is similar to a purchase does not mean that the trustee can treat the RRSP contribution as either an advance or a purchase at its option. There must be some goods or services which are the subject of the purchase. The RRSP contribution does not result in the acquisition by the annuitant of either goods or services where the RRSP is one as defined in subparagraph 146(1)(j)(ii) of the Act.
In a telephone conversation of March 21, 1991 (Spice 19(1) agreed to make submissions on this point. In the same telephone conversation Ms Spice advised 19(1) that, assuming a purchase transaction took place, 24(1) would not constitute an advantage under paragraph 146(2)(c.4) of the Act.
In our letter of April 15, 1991 (a copy of which was forwarded to Ms Greer) we again asked 19(1) for his submissions on the issue of whether an RRSP contribution could be made through a credit card purchase transaction. 19(1) responded by letter of April 19, 1991 ( a copy of which he forwarded to Ms Greer) and declined to address the issue since in his opinion our Legal Services had already confirmed, in consultation with Ms. Greer, that a contribution could be made by way of a "purchase" by credit card. Additionally 19(1) asked for written confirmation that the awarding of 24(1) would not constitute an advantage under paragraph 146(2)(c.4) of the Act and for the waiving of penalties with respect to the approximately 24(1) as cash advances.
We again wrote 19(1) on June 5, 1991 (copy enclosed) and received his reply on June 18, 1991 (copy enclosed). The contents of these letters are self-explanatory.
As we discussed in our telephone conversation of July 30, 1991 (Darling/Kotlar) we are referring this matter back to you for your further action. Since 24(1) also permits RRSP contributions through credit card "purchases" you may wish to alert them to our concerns. As we discussed in the aforementioned telephone conversation, however, where the only benefit to the annuitant is the interest-free loan available to credit card users to their next statement date, we may have difficulty in alleging that an advantage within the meaning of paragraph 146(2)(c.4) of the Act has been extended. Case law under subsections 15(1) and 105(1) of the Act holds that an interest-free loan is not a benefit (No.359 v. M.N.R. 56 DTC 475, Cooper v. the Queen 88 DTC 6525).
If there is anything else we can do to assist, please do not hesitate to contact us.
DirectorFincancial Industries DivisionRulings Directorate