 Investing in schemes that promise you tax-free withdrawals from
RRSPs and RRIFs could result in you losing your retirement savings
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 and in a reassessment of your tax returns.
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;
-
Income tax deductions of three or more times the
amount invested in an RRSP;
-
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.
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, including the Internet, local
newspaper advertisements, and 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.
Taxpayers should avoid these schemes because:
1. 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. This means that
taxes are assessed on these amounts, as well as any applicable
interest. Penalties may also be levied for amounts not reported.
2. 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.
Get professional, independent advice.
If you are considering investing in one of these
arrangements, it's very important that you get independent legal and
tax advice; or if you encounter a questionable scheme, please call
1-800-267-3100 (Registered Plans Directorate).
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