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ARTICLE · 24 JUNE 2012

Finance Proposes Amendments To The "Prohibited Investment" Rules

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In a recent letter (the "Finance Letter") to the Joint Committee of the Canadian Bar Association and the Canadian Institute of Chartered Accountants (the "Joint Committee"), the Department of Finance (Canada) ("Finance") announced its intention to recommend a number of technical amendments to the "prohibited investment" rules (the "PI Rules") in the Income Tax Act (Canada) that govern investments made by registered retirement savings plans ("RRSPs"), registered retirement income funds ("RRIFs")

CanadaTax
Michael Friedman
Michael Friedman
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In a recent letter (the "Finance Letter") to the Joint Committee of the Canadian Bar Association and the Canadian Institute of Chartered Accountants (the "Joint Committee"), the Department of Finance (Canada) ("Finance") announced its intention to recommend a number of technical amendments to the "prohibited investment" rules (the "PI Rules") in the Income Tax Act (Canada) that govern investments made by registered retirement savings plans ("RRSPs"), registered retirement income funds ("RRIFs") and tax-free savings accounts ("TFSAs", and collectively with RRSPs and RRIFs, "Plans").

Under the PI Rules, an annuitant under a Plan (a "Plan Holder"), which acquires and holds a "prohibited investment", may be subject to a 50% penalty tax on the fair market value of the investment and a 100% penalty tax on any income or gains derived from the investment.1 The PI Rules are intended to discourage taxpayers from using Plans to generate improper tax advantages or engaging

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