CRA updates RRSP, TFSA advantages folio

By Melissa Shin | April 26, 2019 | Last updated on October 27, 2023
3 min read
© erhui1979 / iStockphoto

The Canada Revenue Agency’s income tax folio explaining how the tax advantage rules apply to RRSPs, RESPs, RRIFs, RDSPs and TFSAs was updated Friday.

On April 26, the agency published a summary of comments from the tax community it received during the Oct. 1 to Dec. 1, 2018 comment period.

The agency used the folio to highlight several practices that have always been restricted by the Income Tax Act, but that aggressive planners have used. An “advantage” in this context is, in layman’s terms, an outsized or unintended tax benefit.

The updates clarified the CRA’s positions on cash incentives and prizes related to opening registered accounts and TFSAs; artificial increases in the fair market value (FMV) of property; and employee-owned securities.

With regards to cash incentives, the CRA said that neither bonus interest nor cash back on new deposits to registered plans (or as a result of having a minimum in registered plans) constitutes “a premium, gift or contribution to the plan.” Rather, the CRA considers those incentives “a return on investment.” As a result, “such payments will not affect contribution limits or the registered status of the plans.”

Cash prizes, however, are considered gifts and contributions, the folio stated. To drive this point home, the folio update said, “Such cash prizes are not considered a return on investment.” The CRA recommended that institutions design contest rules “to ensure that winnings are not deposited directly into a registered plan. The winner is free to contribute the winnings to an RRSP, RESP, RDSP or TFSA, subject to their contribution limit.”

As for artificial increases in FMV, the CRA updated the folio to clarify the factors that could indicate “a transaction or event relating to an investment held by a registered plan is not commercially reasonable.” One of those factors could now be if the transaction “involves circumstances where there is uncertainty in valuation (for example, the payment of discretionary dividends or other discretionary entitlements on securities purported to have been acquired by the plan at FMV).”

The folio also addressed employee-owned securities, noting that employers often incentivize or require employees to invest in securities of the employer, sometimes in a registered account. Friday’s update clarified that an employee could be considered to be advantaged if the securities had “a loss protection mechanism such as a guaranteed repurchase price that is not reflective of FMV” or if there were “preferential financing terms or other financial accommodation” to purchase the securities.

The tax community also asked the CRA to revise section 3.17 of the folio, which governs artificial increases in fair market value, to take into account the Tax Court of Canada decision in Louie v. the Queen. That decision “significantly undercuts the CRA’s interpretation of the advantage rules,” wrote David Davies, tax lawyer with Thorsteinssons LLP in Vancouver, in a blog post following the decision’s release. The CRA declined to revise the section since the decision is currently under appeal to the Federal Court of Appeal.

Registered fee position still forthcoming

On Oct. 3, 2018, the CRA confirmed it would delay taxing registered account investment fees paid from open accounts “indefinitely,” pending a review by the Department of Finance.

April 26’s folio update did not include revisions to the section of the folio titled “fees and expenses.”

The section still read, “Comments on the tax treatment of fees and expenses incurred in connection with a registered plan and its investments will be included in a future update to this chapter.”

The advisor community has been waiting for CRA’s guidance since November 2016, when the topic came up at a Canadian Tax Foundation roundtable.

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Melissa Shin

Melissa is the editorial director of and leads Newcom Media Inc.’s group of financial publications. She has been with the team since 2011 and been recognized by PMAC and CFA Society Toronto for her reporting. Reach her at You may also call or text 416-847-8038 to provide a confidential tip.