Fact sheet

March, 2000

Owners of self-directed RRSPs should use caution with tax-free withdrawal schemes

Some promoters of financing schemes promise Registered Retirement Savings Plan (RRSP) owners that they can make tax-free withdrawals from their RRSPs. Typically, the arrangement involves using an individual's self-directed RRSP to purchase shares of a private company. The funds used to purchase the shares are then loaned back to the owner of the self-directed RRSP at low or no interest.

Marketers of these schemes promote them with claims such as "Take advantage of your RRSP now -- no tax to pay," or "I will loan you $5,000 to $250,000 over five years if your RRSP is locked in." Taxpayers who respond to these kinds of advertisements risk losing retirement savings and the tax benefits of those claims. If an RRSP is used as security for a loan, the value of the RRSP will be added to the taxpayer's taxable income. Similarly, if an RRSP is used to purchase shares of a private corporation, and the shares are not a qualified investment under the rules, then the value of the shares will be added to the RRSP holder's taxable income.

Taxpayers should consult with knowledgeable tax advisors before taking part in any scheme that promises a tax-free withdrawal of RRSP funds. Administrators and trustees are asked to advise clients that there may be tax consequences if non-qualified investments or loans are secured with an RRSP.

For more information, contact:

Individual inquiries - From February 21 to April 30, 2000, clients with general enquiries can call 1-800-959-8281 between 8:15 a.m. and 10:00 p.m., Monday to Friday, and between 9:00 a.m. and 1:00 p.m., Saturday and Sunday. Clients with business enquiries can call 1-800-959-5525, between 8:15 a.m. and 8:00 p.m., Monday to Friday. For media information