July 9, 1986
G.D. Middleton (613) 995-0051 Dear XXXX
We are replying to your letter of April 17, 1986 in which you requested our interpretation of paragraph 146(2)(c.4) of the Income Tax Act (the "Act"). We apologize for the delay in replying to you.
Specifically, you have asked us whether any of the "advantages" described in the following situations are prohibited by paragraph 146(2)(c.4) of the Act.
1. A pensioner transfers his monthly registered pension plan income amounts directly into a registered retirement savings plan ("RRSP"). The financial institution ("Issuer") agrees to pay the RRSP a premium interest rate (i.e. 1/2% above the market rate) on the transferred funds.
2. An individual transfers his RRSP funds with Issuer A to an RRSP with Issuer B. As a result of this transfer, Issuer B agrees to pay a cash bonus directly into the RRSP or to pay the RRSP a premium interest rate on the transferred funds.
3. RRSP funds with Issuer A are transferred to an RRSP with Issuer B. Issuer B agrees to pay the RRSP a premium interest rate on the transferred funds and the rate will be based on the size of the transfer. For example, if $10,000 to $25,000 is transferred, then a premium of 1/8% above the market interest rate will be paid on the funds. If $25,000 to $50,000 is transferred, then a premium of 1/2% above the market interest rate will be paid.
We confirm your understanding that advantages conferred upon a person involving payments made directly in a RRSP do not fall within the ambit of the above-mentioned provisions of the Act. Accordingly, since the Issuer described in each of the above situations pays (or credits) the cash bonuses or premium interest rates directly to the RRSPs (as opposed to paying these directly to the annuitants under the RRSPs) there is no contravention of the provisions of paragraph 146(2)(c.4) of the Act.
We trust that our answer will be of assistance to you.
Yours truly,
for Director Financial Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch