To be eligible for the relief a taxpayer must withdraw the transitional prohibited investment benefit from their RRSP/RRIF by 90 days after the end of the year in which the income or gains are earned or realized. The withdrawal amount will then be treated as a regular RRSP/RRIF withdrawal and will be included in the taxpayer's regular income to be taxed at the taxpayer's own marginal tax rate for the relevant year. Even if a taxpayer doesn't currently have an advantage on a prohibited investment that was held in an RRSP/RRIF as of March 23, 2011, it is prudent to still file an election on or before March 1, 2013, because there is currently no ability to late-file the election.
The technical bill draft legislation released December 21, 2012 extended the deadline in subsection 207.05(4) to March 1, 2013 to elect to have transitional relief apply to an advantage realized on a prohibited investment held on March 23, 2011. In general terms, a "transitional prohibited investment benefit" as defined in subsection 207.01(1) is income from, or a capital gain on, a prohibited investment held by an RRSP or RRIF on March 23, 2011.
The Form RC341 election allows a taxpayer to elect not to have the 100% advantage tax under section 207.05 apply on the income or gain as long as the amount is withdrawn from the taxpayer's RRSP or RRIF within 90 days after the tax year in which the income or gains are earned or realized, as required under subsection 207.05(4).
Previously, the transitional rule's coming-into-force provision required taxpayers to make this election by December 31, 2012 (extended from June 30, 2012). The 2012 technical bill also proposed additional relief to:
- Make indefinite the transitional rate applicable to advantages from prohibited investments held on March 23, 2011 (previously there was only a 10-year time limit)
- Expand the types of property that are excluded from being prohibited investments
- Clarify what constitutes an "advantage", a "swap transaction" and an "RRSP strip".
Due to the complexity of these anti-avoidance rules, you should speak to your KPMG tax advisor before March 1 to ensure your RRSP and RRIF are in line with these new requirements.
For more information, contact your KPMG adviser.
Information is current to February 26, 2013. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500