1999 RRSP consultation session - Summary of discussion

On October 18 and 19, 1999, in Ottawa, we held our second annual consultation session with the the financial industry that handles registered retirement savings plans (RRSPs), registered retirement income funds (RRIFs), and registered education savings plans (RESPs). The October 18 session was in English and the October 19 session was in French. The purpose of these sessions is to discuss administrative and reporting changes that affect the financial industry, as well as issues of ongoing concern. This report summarizes the discussions of both the English and the French sessions. The word we in this report refers to the Canada Customs and Revenue Agency and you refers to the financial industry.

Following are the topics that were discussed at the conference:

• T4RSP and T4RIF Products
• Home Buyers' Plan and Lifelong Learning Plan
• RRSP Contributions
• Death of an Annuitant and Transfers
• RESPs
• Registration Issues
• Other RRSP Issues
• T3 Special Returns
• Web site for Registered Plans

T4RSP and T4RIF Products

• We added box 25 to the T4RSP slip, Statement of RRSP Income. You use this box to report RRSP withdrawals under the lifelong learning plan (LLP). The client does not pay tax on LLP withdrawals, and you do not withhold tax on LLP withdrawals that are within the maximums. The client shows the LLP withdrawal on Schedule 7, RRSP Unused Contributions, Transfers, and HBP or LLP Activities. You check Form RC96, Lifelong Learning Plan (LLP) - Request to Withdraw Funds From an RRSP, to find out if the withdrawal is within the maximum or not. If the client withdraws more than the maximum, you withhold tax on the excess portion only. You report the excess portion in box 22 of the T4RSP slip.
  
  
• You asked us why we have not added home buyers' plan withdrawals to the T4RSP slip. We will look at the possibility of using this method for such withdrawals after we determine whether this reporting method works well for LLP withdrawals. We are considering using 2000 as a transition year, in which financial institutions would file both Form T1036, Home Buyers' Plan (HBP) - Request to Withdraw Funds From an RRSP, and a T4RSP with a new box for HBP withdrawals. For withdrawals in 2001, a process similar to the LLP would be in place. A final decision on this will be made by the end of 1999 and the financial industry will be informed in early 2000.
  
  
• We changed box 24 of the T4RSP slip, so you have to check either yes (the plan is a spousal plan) or no (the plan is not a spousal plan). In previous years, you either indicated that the plan was a spousal plan, or you left the area blank.
  
  
• The T4RSP Summary and Segment were modified to include the new box 25 information.
  
  
• You should use the new 1999 T4RSP slips and forms, even if your client has not made an LLP withdrawal in 1999. This also applies to E-filing. If you are unable to meet the specifications for magnetic media filing for 1999, you can send us a written request to use the 1998 specifications, and tell us what the problem is. We will consider requests that result from year 2000 problems. Include an estimate of the number of slips affected. We will also need a written commitment from you that you will comply when filing your year 2000 slips in 2001. You can send your request to:

Joe Hartwick
Information Returns Section
Canada Customs and Revenue Agency
Room 479, Tower C
25 McArthur Avenue
Vanier ON K1A 0L5

If you prefer, you can fax your request to Mr. Hartwick at (613) 941-9782.

• You can use the 1998 versions of the T4RIF slips and forms for 1999, since they have not changed for 1999.
  
  
• Starting in 1999, you have to file your T4RSP and T4RIF Summary electronically if you file more than 500 slips. As a result, we may stop using the T4RSP Segment. However, we will make it available for 1999.

Home Buyers' Plan and Lifelong Learning Plan

• At last year's consultation session, we explained that we are working towards streamlining your role in the administration and reporting of the home buyers' plan (HBP) and lifelong learning plan (LLP). Last year, we cancelled the HBP repayment form (T1037). Clients now use Schedule 7, RRSP Unused Contributions, Transfers, and HBP or LLP Activities, which is part of their tax package, to indicate HBP repayments and LLP withdrawals and repayments. They can also use it to change the LLP student in their first year of participating in the LLP.
  
  
• This year, we simplified the cancellation procedure for both the HBP and the LLP. Rather than completing special cancellation documentation to give to the financial institution, clients can now go to any financial institution and make a contribution to any of their RRSPs, and inform us afterwards that the contribution was a cancellation payment. The financial institution treats the contribution as a regular RRSP contribution, and issues a normal receipt. The client informs us by completing the cancellation form in the back of the HBP and LLP guides, and mailing it with the receipt, to the address indicated in the guide.
  
  
• We changed Form T1036, Home Buyers' Plan (HBP) - Request to Withdraw Funds From an RRSP to eliminate the cancellation portion. We also added a short questionnaire to help clients determine whether they really qualify to use the HBP or not.
  
  
• We focus-tested Form RC96, Lifelong Learning Plan (LLP) - Request to Withdraw Funds From an RRSP, and made minor changes as a result.
  
  
• You asked us why the HBP or LLP cancellation could not be done using Schedule 7. The reason is that a cancellation is processed differently from a regular repayment, since the client must meet certain conditions to cancel an HBP or LLP withdrawal. In addition, the number of cancellations is very small, and the usage of Schedule 7 is high. We are trying to keep Schedule 7 as simple as we can, to make it as easy as possible for our clients to use.
  
  
• You asked us if the cancellation form would be available separately from the LLP or HBP guide. The answer is no. Because of the extremely low usage, it is not worthwhile to print the form separately.
  
  
• You asked us which number we are looking for on Forms RC96 and T1036, when we ask for the plan number of the RRSP. We are looking for the number of the individual client's RRSP, not the registration number.
  
  
• You asked us if it would be acceptable to download a copy of Form T1036 from the Internet, and use the copy to process a withdrawal. The answer is yes, and this is also true for Form RC96. The 1998 versions of the form can also continue to be used in early 2000, if you have not obtained the 1999 versions, which should be available early in December. Starting in 2000, both Form RC96 and Form T1036 will be non-year-specific.

RRSP Contributions

• The deadline for 1999 RRSP contributions is February 29, 2000. You asked us for guidelines on establishing whether contributions have been made by the deadline. Generally, normal business practice applies to the RRSP contribution deadline. You have to be in possession of some means of payment that could be processed on the contribution deadline, even if it is not processed until a later date.

Normally, when you receive a cheque, you consider that the payment is made on the date the cheque is received, even if the actual account debit occurs a couple of days later. If you receive an RRSP contribution by cheque before the deadline, and it is dated before the deadline, we consider that the contribution had been made in time. Unless there is some kind of abuse, the date of the actual account debit is not a factor. The same principle applies to electronic contributions. If you would normally be satisfied that an amount has been credited electronically, we would consider the RRSP contribution to have been made as well. We note that in these cases you would credit the RRSP at the time the cheque, or permission to debit an account was made, not on the later date when the payment was actually processed.

When setting up a new RRSP, you have to determine whether the contract has been entered into before the deadline or not. Usually, if the client has made the contribution, a contract has been established, even if the documentation has not been signed either on paper or electronically.

Death of an Annuitant and Transfers

• We are considering cancelling Form T2220, Transfer From an RRSP or a RRIF to Another RRSP or RRIF on Marriage Breakdown. The requirement to have both spouses complete the form causes problems in some cases, and is not a legal requirement under the Income Tax Act in order to effect the transfer. The requirement is that the three parties (both spouses and the institution) must jointly complete the T2220 when the transfer is complete. We are considering adding the transfer information to the T4RSP slip. Because of the need to seek legislative changes, a timetable for implementing this change has not yet been set.
  
  
• The Department of Finance Canada has proposed a change to the legislation affecting transfers on the death of an annuitant. Under the proposed change, a financially dependant child or grandchild of the annuitant could receive a refund of premiums even if there is a surviving spouse. This change would apply for 1999 and later years. It could also be applied for 1996 to 1998 if the child or grandchild and their legal representative send us a letter choosing that option, and including the information outlined in the document called "Proposed changes to the definition of "refund of premiums" under subsection 146(1) and to paragraph 60(l)". The final date for choosing that option is April 30, 2000, but any related RRSP contributions to transfer the funds must be made before February 29, 2000.
  
  
• You asked us if a refund of premium transfer to a surviving spouse could be reversed in light of this proposed change. The answer is no. There is no provision in the Income Tax Act that would permit the reversal of such a transfer.
  
  
• We have prepared two new information sheets, one called Death of an RRSP Annuitant, and one called Death of a RRIF Annuitant. These information sheets explain the general rules that apply on the death of an annuitant. They should be printed in early 2000.
  
  
• We have simplified Form T2019, Death of an RRSP Annuitant - Refund of Premiums and Form T1090, Death of a RRIF Annuitant - Designated Benefit.
  
  
• We will no longer print Form T2033, Direct Transfer Under Paragraph 146(16)(a) or 146.3(2)(e), as there is no longer a legal requirement to use it to record transfers. It will continue to be available on the Internet, and you can use up any remaining stock that is available.
  
  
• You asked us about a situation where, after the death of an annuitant, the fair market value of an RRSP decreased in the time between the death and the payment of the benefits from the plan. The Income Tax Act requires that the recipient be taxed on the higher amount, that is the value immediately after the death of the annuitant. We have been discussing this issue with the Department of Finance Canada, who agree that there is a problem with this result. We have not yet arrived at a decision as to the best way to deal with this problem.

RESPs

• When an RESP promoter makes an accumulated income payment out of a registered education savings plan (RESP), the promoter is required to withhold amounts on account of tax payable under Part I and Part X.5 of the Income Tax Act. The rate of tax payable under Part X.5 has been reduced from 20% to 12% for accumulated income payments made to residents of Quebec. Although the Income Tax Regulations have not yet been amended to reflect this change, it is the Department's position that RESP promoters should use this new rate.
  
  
• We changed Form T1172, Additional Tax on Accumulated Income Payments From RESPs, to reflect the change in the rate of additional tax for residents of Québec.
  
  
• In light of the Part X.5 rate change for residents of Québec, we also changed Form T1171, Tax Withholding Waiver on Accumulated Income Payments From RESPs, to remove all references to 20%.
  
  
• We updated our RESP information sheet, by making minor changes to the following sections: "What is an RESP?", "Who can become a subscriber?", "Educational assistance payment (EAP)", and "Accumulated income payment (AIP)".
  
  
• You asked us how you should treat overcontributions to RESPs. Currently, there is no specific mechanism in place for reporting them to Human Resources Development Canada (HRDC). In some cases you will know there is an overcontribution and in others you will not know. HRDC will determine if there are overcontributions and advise subscribers. In most cases the subscribers will be given a time frame to withdraw the excess contributions without penalty. The rules are not settled but only blatant abuse will be penalized at the beginning. Once the rules are finalized we will inform the industry.
  
  
• An RESP is sometimes left with only a small amount of cash after the subscriber withdraws the contributions as a refund of payments. You asked us if the promoter can pay the remaining cash out as an accumulated income payment to avoid maintaining the RESP indefinitely. The answer is no. This is because, under the terms of its registration, an RESP cannot allow for the payment of an accumulated income payment until all of the conditions described in subparagraphs 146.1(2)(d.1)(i) to (vi) of the Income Tax Act have been satisfied. This continues to apply where a small amount of cash remains after the payment of a refund of premiums to the subscriber. However, there are options that the RESP could provide that would be acceptable. Under the terms of its registration, an RESP can provide that a payment be made to designated educational institutions in Canada, to a trust in favour of designated educational institutions, or to another RESP. The promoter should ensure that the terms of the RESP provide for the automatic payment to one of these if the cash balance is less than a specified amount.
  
  
• You asked us if a minor can transfer or sell Canada Savings Bonds that are held in the minor's name to an RESP under which the minor's parents are the subscribers and the minor is the beneficiary. We cannot answer that question. You should address any question relating to the transfer or sale of Canada Savings Bonds to the Bank of Canada. However, we do have some comments that may be helpful. The sale or transfer would require a change in ownership because the RESP would have to be the registered owner of the Canada Savings Bond after the sale or transfer by the minor. Where a minor transfers Canada Savings Bonds to an RESP under which the minor is the beneficiary and the minor's parents are the subscribers, the transfer would be considered a disposition for purposes of the Income Tax Act. As a result, the transfer would have to be at fair market value, or the provisions of paragraph 69(1)(b) of the Income Tax Act would apply. That paragraph would deem the minor to receive proceeds of disposition equal to the fair market value. We have confirmed with officials of the Department of Human Resources Development Canada that contributions to an RESP by anyone other than the subscriber are not eligible for the Canada Education Savings Grant.

Registration Issues

• Registered Plans Division moved on November 19, 1999. You can contact the Division at:

• Starting on November 19, you should send courier mail to:

45 Sacré-Coeur
Hull, QC K1A 0L5

• Starting on November 19, send RESP correspondence to 112 Kent St.
  
  
• Registered Plans Division is responding to about 70% of RRSP/RRIF and RESP related correspondence within 50 days of receipt, and are trying to get more resources to improve response time.
  
  
• Please be sure to include the plan specimen number on any plan-related correspondence you send to the Registered Plans Division.
  
  
• You should not have commercially-printed copies of contracts prepared until we have approved the specimen.
  
  
• We are looking for ways to improve our response time to requests for administrative relief. We have prepared a list of five situations for which we will not, in any circumstances, approve administrative relief, and three situations which you can process without our approval. We will require a triennial filing from you, outlining how many of these situations you have processed.
  
  
• We are currently examining the possibility of accepting the electronic filing of RRSP listings. Until now, we have always required paper listings of the contracts. As a first step, we would like to establish a standardized format for the record layout and the field definitions for filing electronic listings. CD-ROMs would be our preferred media for storing the listings. You would still have to submit Form T550, Application for Registration of RSP's, ESP's, or RIF's Under Section 146, 146.1, and 146.3 of the Income Tax Act, with the CD-ROM. Registered Plans Division will continue to offer the option of filing the list on paper.
  
  
• Registered Plans Division will develop the standards record layout and field definitions. The Division will communicate directly with you at a later date to obtain your comments.
  
  
• You asked us about RRSPs offering benefits to same-sex spouses. The Income Tax Act has not changed. It does not permit us to accept plans for registration if they offer benefits to same-sex spouses.

Other RRSP Issues

• You asked us about the calculation and payment of foreign content tax from an RRSP. You have to calculate it on a monthly basis, but you do not pay it monthly. You have to pay the tax within 90 days of the end of the year. You asked if the tax could be paid from outside the RRSP. The answer is no. It must be paid from the RRSP itself. If you paid it from outside the RRSP, we would treat it as though it were a contribution to the RRSP.
  
  
• You asked us how to calculate the foreign content of a self-directed RRSP when an individual acquires foreign obligations with coupons. The answer is that the foreign obligations should be valued at their cost amount, which is the amount paid on acquisition. This would be the fair market value on the date of acquisition if arm's length parties are involved. If non-arm's length parties are involved, there is no presumption that the amount paid is, in fact, fair market value.
  
  
• You asked us whether you should use the cost amount or the fair market value to determine the value of the property acquired by a RRIF when the property was transferred from the annuitant's RRSP. Our position continues to be that the RRIF trust acquired the property at its fair market value. Until there is a change in the legislation, the provisions of section 206(4) of the Income Tax Act clearly require this result. We have brought this matter to the attention of the Department of Finance.

T3 Special Returns

• We combined Form T3R-IND and Form T3RIF-IND, to create the new T3IND, T3IND Income Tax Return for RRSP, RRIF, or RESP, which is a 4-page, 8 ½ by 11 form. We also combined the T3R-G and the T3RIF-G, to create Form T3G, Certification of No Tax Liability by a Group of RRSPs, RRIFs, or RESPs, which is a 1-page, 8 ½ by 11 form.
  
  
• We cancelled the T3E return for RESPs. If an RESP has non-qualified investments, RESP reporting will now be done on the T3IND. Otherwise, it will be done on the T3G.
  
  
• We will be updating Information Circular 78-14, Guidelines for Trust Companies and Other Persons Responsible for Filing T3R-IND, T3R-G, T3RIF-IND, T3RIF-G, T3H-IND, T3H-G, T3D, T3P, T3S, T3RI and T3F Returns, to reflect these and other changes that have occurred since the most recent version was published.
  
  
• After the consultation session was held, we were advised of a proposed change to the legislation that affects the calculation of the small business investment amount, and in turn, the foreign property calculation. As a result, we have made an additional change to the T3IND return, Schedule 1. We added column (e) to the small business investment amount chart. The calculation for column (e) is "the greater of (b) and (d)". This change is applicable starting January 1, 1998.
  
  
• You asked us if the federal and provincial tax calculations could be included on the T3IND, rather than having to refer to the T3 return and guide. We will look at the possibility of including the calculation on the forms in the future.
  
  
• We are currently studying the possibility of offering electronic transmission of T3  returns for the 2002 or 2003 tax year. We will be providing specifications and more details on this option as they become available. If you have any concerns or comments on this initiative, please send an e-mail to Phil Doucet (phil.doucet@ccra-adrc.gc.ca) or Anne Ouellette (anne.ouellette@ccra-adrc.gc.ca).
  
  
• If you normally file large numbers of T3 special returns such as the T3IND return, you can now get an account number from the Ottawa Technology Centre (formerly Ottawa Tax Centre) before you file the returns. If you are interested in this option, please send an e-mail to Phil Doucet or Anne Ouellette at the above addresses.

Web site for Registered Plans

• We know you often have difficulty finding the right person to answer a particular question on a registered plan issue. This is because the areas of responsibility for registered plans are spread throughout the Agency, depending on whether it is a registration issue, a reporting issue, or a technical issue. We therefore propose to establish a special Web site for registered plans. This could provide a single contact point for any questions and issues that relate to the various registered plans. We will be sending you a survey in early 2000 to get your reactions to this proposal, to discuss service standards, and to ask for your suggestions as to what such a Web site should offer. We have listed some of the ideas we are considering below.
  
  
• We could develop some of our products for the Internet exclusively. We are working on fillable forms, which would let you prepare your clients' copies of forms directly from the Internet. We would like to establish a pilot project, using some of the simpler forms that do not need calculations.
  
  
• We could set it up as a virtual office, including a question and answer section, which would ensure that current issues are dealt with quickly and widely communicated.
  
  
• The website could also facilitate communication between the various financial institutions that deal with registered plans.
  
  
• We develop training material on registered plans every year for use by our own staff. We could make our training material available on the website for your use, if you wish.
  
  
• We could look into making individuals' RRSP limits available on the Web site. This could be useful to your staff who deal with individuals making RRSP contributions.
  
  
• If you have more ideas, we would like to hear from you. If you send them to the following e-mail address, we can include them in our survey early next year: daniel-s.desjardins@ccra-adrc.gc.ca