RRSP and RRIF Schemes

The Canada Revenue Agency (CRA) is finding an increasing number of questionable registered retirement savings plan (RRSP) and registered retirement income fund (RRIF) tax-free withdrawal schemes. The CRA is warning that investing in such schemes could result in you losing your entire retirement savings to unscrupulous promoters, as well as a reassessment of your previous year’s tax returns.

Stats and facts

  • To date, the CRA has reassessed over 5,000 investors who participated in these schemes resulting in additional taxable income of approximately $250 million.
  • Additional audits of taxpayers and RRSP and RRIF investments are ongoing, and more audits are being initiated.

Taxpayers should avoid schemes that promise the following:

  • withdrawal of funds from an RRSP or RRIF without paying tax—promoters often promise to return part of the taxpayer’s investment by offshore debit or credit cards, offshore bank accounts, or loan-back arrangements;
  • immediate access to assets in “locked-in” RRSPs or RRIFs;
  • unrealistic returns on investments.

Typically, promoters of these questionable schemes direct the owner of a self-directed RRSP or RRIF to purchase a particular investment through a specific trustee. The particular investment could be shares in a company, units of participation in a co-operative, a mortgage, or other types of investments.

Taxpayers should avoid these schemes for two reasons:

  These arrangements can put their retirement savings at risk. In some cases, the promoter walks away with all the funds and cannot be found. Many Canadians have lost their entire retirement savings to unscrupulous promoters by participating in such arrangements.

  The full amount of any withdrawal or ineligible investment is included in the taxpayer’s income in the year the investment was made or the withdrawal occurred, even when the savings are lost to the promoters. Interest and penalties may also be levied for amounts not reported.

These schemes are promoted to look legitimate. The promotion of these schemes usually appears very professional, and makes the schemes appear legitimate. Various promotional methods may be used, such as the Internet, local newspaper advertisements, and/or promotional meetings. Promoters often provide opinion letters from professionals that give the impression that the letter writer endorses the scheme. These letters should not be interpreted as providing any assurance that these schemes do what they claim to be doing or that the promised tax benefits are in accordance with the Income Tax Act. Get professional, independent advice. If you are thinking about investing in one of these arrangements, it’s very important that you get independent legal and tax advice. Independent advice means advice from a tax professional not connected to the scheme or promoter.

The CRA has increased its RRSP compliance activities to include promoter audits and audits of trust companies. If you have invested in one of these arrangements and wish to correct previous omissions or errors, you can do so through the CRA’s Voluntary Disclosures Program. If you make a full disclosure before any compliance enforcement action is started, you may only have to pay the taxes owing plus interest.

Click for more information on the Voluntary Disclosures Program. If you encounter a questionable scheme, please call 1-800-267-3100.